Category Archives: Razorfish

Why do CPMs still exist?

We’ve been critical of Razorfish reports in the past and so must tip our hat to that digital team for its insightful Razorfish Outlook Report 2010 — which not only lucidly addresses major trends in online marketing, such as the rise of ad exchanges, but also offers a candid peek inside Razorfish’s own business.

One curiosity in the report, however, comes in the section where Razorfish discusses the impact of the 2009 recession on client media spending. Their clients, similar to yours if you work in the ad business, made the expected moves: shifting ad spend to direct-response channels, using discounting in messaging, moving more funds to paid search. Yet the big surprise was 48% of online ad spending was still placed on a CPM model — the type of buy where you pay for impressions no matter who clicks on or responds to the ad.

CPMs stand for “cost per thousand impressions” and are one of the great artifices of the ad industry. They are fiction, you see, because most “impressions” don’t really reach consumer retinas at all. In newspapers, readers do not scan every ad on every page; on television, the average U.S. household has access to 130.1 channels but tunes in to only 17.8. The rise of tighter measurement tools in radio known as portable people meters exposed the fact that consumers often turn the dial when :30 second radio spots come on — news so bad that Arbitron, the radio ratings service, launched a PR campaign to try to convince ad agencies that fewer impressions were a better value! The vast majority of ads run in any media are never seen. CPMs, in other words, are a currency used to place a value on a media audience — and just as a paper dollar has little to do with real gold, you should never confuse an impression estimate with an actual frontal lobe synapse firing.

On the web, pay no attention to measurement?

CPMs in the Internet arena are no different. One has to wonder, in the year 2010 when we can conceivably tag every computer browser and track responses in the forms of CPCs, CTRs, CPAs, conversions, even cost per sale, why nearly half of all online ad buys are still pushed through the weak CPM pricing system. This is no knock on Razorfish; our clients do the same thing, since the online marketplace demands it. The truth is there is huge resistance inside the industry by publishers, who aggressively (and fearfully) defend impression-based pricing structures which pull revenue no matter what the result. Online pricing schemes remain the Wild West of media — it is possible to spend $60 CPM to reach an elite audience at, or $17 CPM if you negotiate shrewdly, or $6 if you are clever enough to lift the audience and chance them with retargeting. Ad networks can drive down costs even further to below $1 CPMs, and buys using the cost-per-click model remove potentially all waste in the top of the funnel. So what does it cost to reach 1,000 wealthy consumers online? A buck or 60 dollars, take your pick.

Yet CPMs persist. They are in fact a necessary defense for all content publishers, as the inventory of communication channels rises to infinity and switching costs fall to zero. The only way to make a margin with any material is to build in waste, and fight to keep that frictional source of profits. To paraphrase John Wanamaker, half the money you spend on advertising is wasted, and publishers really, really want to keep it that way.

The silly bias of the Razorfish Feed report

Did you know that people who stand in line for ice cream also like to eat ice cream? The latest Razorfish report on social media trends makes just as much sense. Their “Feed” report now being retweeted everywhere online has rosy stats such as 65% of consumers have had online experiences influencing their perception of a brand. Yes! Marketers, unleash those social media budgets!

Alas, dig into page 14 of the report and you find the survey sample was 1,000 consumers who:

a. have broadband access
b. spent at least $150 online in the past 6 months
c. visited a community site such as Facebook or Yelp
d. consume or create digital media.

That’s right. Razorfish asked heavy users of the web and social media who are comfortable spending money online if they are influenced by the web and social media. We hate to rain on Razorfish, usually a sharp group, but this report feels like self-justifying fuzziness designed to provide bar charts for business development. The technical term for this is “coverage bias,” in which the sample being studied does not represent the population as a whole.

So enjoy those Razorfish quotes being tossed around — 97% of consumers search for brands online! An “overwhelming majority” welcome advertising on social networks! We also hear that 100% of heavy internet users are people who use the internet.

The fuzzy finding in the Razorfish Fluent report

Interactive group Razorfish has a new report out saying it is more important than ever before for brands to start engaging consumers inside social media. Trouble is, a lot of the data inside the Razorfish study shows consumers may not care:

– In 5 of 7 industry categories (auto, finance, home and garden, retail and travel), only 10% or less of 1,000 consumers surveyed said they were very likely to interact with a brand on social media.

– Only 33% of consumers said they trust their online friends’ recommendations vs. 73% who trust their offline friends.

– Social network advertising scored half as low in authenticity vs. television advertising and about 40% lower than print advertising.

Add it up and consumers don’t want to interact with many brands, they don’t trust online friends, and they find marketing incursions in social media inauthentic. The idea that building a marketing arm inside Facebook or Twitter is urgent seems a little silly, given those findings.

Consumers don’t care?

The Razorfish study does have good points, such as it is important for brands to “do” things worth consumers talking about and to learn how to measure conversations inside social media. Their discussion of a “Social Influence Marketing” or SIM score is noteworthy. But the real finding is consumers chatting among themselves usually do not want marketers to be part of that conversation at all.

We’ll explore this “consumers don’t care” concept and its implications for all forms of advertising in an upcoming column. Stay tuned. For the Razorfish counterpoint, we recommend this Adweek interview with Shiv Singh, Razorfish’s social media chief, and also his insightful blog.

87.3% of the time, you trust numbers

Why do people believe every number they see? Tonight social media guru David Armano rebroadcast a tweet claiming Razorfish generated $18.8 million in incremental revenue for H&R Block. It’s possible; H&R Block takes in about $4 billion annually, so a 0.47% lift from online chatter could happen.

So we tweeted David back, asking how agencies such as Razorfish measure social media results, and he responded he didn’t know. Meanwhile thousands of David’s friends were forwarding the stat around to others online. This is not to poke at David, who is a truly brilliant and generous agency mind and has illustrated the nuances of social networks in ways that might make Edward Tufte blush. Rather, it points out the human fallacy of numbers.

We like numbers. 50% off. Buy 1, get 1 free. Perfect 800 on SAT. You’re a 10. Numbers make us feel good, and if tipped just so — say, $3.99 instead of $4.00 on a mocha latte — we rush to respond. Numbers can even be fake and we take action. Look at the cover of Oprah or Men’s Health or other quasi-entertainment magazines and you’ll see lots of numbers — 99 ways to lose weight, 7 steps to better sex, 3 new brownie recipes. Are 7 steps to sex too much or too little? Doesn’t matter. We’ll buy the magazine, read about it, and then lose weight while eating brownies.

Numbers lie. Yet numbers illuminate the truth about our inner needs. We yearn to predict the future exactly and if you tell us you can, we’ll believe you — at least 87.3% of the time.

Update: David Deal, VP of marketing at Razorfish, wrote us to note the $18.8 million figure was wrong — an error by a panelist who pulled unrelated data and attributed it by mistake to H&R Block. Thanks, David, for the update.