Studies &
Opinions
Domainer–Madison Avenue Reconciliation*
Alex
Tajirian
August 14, 2007
Introduction
The paucity of domain name acquisitions by Madison Avenue, as a complementary
advertising platform, has been widely attributed to the misalignment
of incentives between the advertising agencies and domain name owners.
However, we argue that advertisers need to first consider additional
factors in the selection of their domain-name ad agency and must understand
the risk-reward relationship associated with domain name acquisitions.
We also put forth recommendations to bridge the knowledge gap between
the stakeholders (namely, advertisers, ad agencies, and domainers).
We first look at alternative compensation
arrangements between Madison Avenue and ad agencies and outline
the decision variables necessary for an efficient compensation arrangement.
Based on these variables, we derive the key implications for advertisers
and domain name owners.
Compensation Arrangements
For the most part, compensation arrangements between advertisers
and ad agencies fall into one of three broad categories: flat fees,
compensation based solely on performance, and the combination of a
set fee with performance-based rewards.
Deciding
which approach to follow depends a lot on the following:
-
Whether the performance metric[1] is measurable[2] ex post and ex ante.
-
Whether the cause of out- and under-performance
can be identified. (Is ex post performance attributable
to the general industry environment or to agency-specific
actions?
-
How much initial investment is needed
for the ad agency to successfully manage a campaign
-
The advertiser’s appetite for risk.
Advertiser Implications
The compensation arrangements outlined above lead to the
following actionable implications for the ad agency and the advertiser:
-
(2a) and (2b), above, suggest the
need for both sides to be comfortable with analytics. (2c)
suggests that the ad agency needs to feel comfortable with
capital budgeting analytics. (2d) suggests that even if the
expected return on a domain name acquisition is positive,
the advertiser need not approve a campaign if it represents
a high risk-to-return tradeoff.
-
An advertiser needs to select an ad
agency that understands domain name industry trends.[3]
-
Don’t look for one ideal compensation
arrangement that suits all domain name–based advertising campaigns.
When it comes to aligning the interest of the ad agency and
that of the advertiser, different marketing venues require
different approaches. To take one example: no matter how small
the initial outlays might be, compensation based solely on
performance may be a poor long-term choice if performance
can be measured but the causes of success or failure cannot.
Domainer Implications
Domainers, like the ad agencies, need to be more comfortable
with domain name analytics. It is not enough to rely on, say, trend
reports that do not disclose their methodology or the sources of
their data. S-curve estimation, for example, is an extremely valuable
tool, especially when selling domain names to sophisticated clients.[4]
Concluding Remarks
-
Successful acquisition will be based
on domain name–specific as well as industry-wide analytics.
-
Advertisers need to design an advertising
performance compensation arrangement that correctly aligns
their interests with those of the selected ad agency.
-
The ad agency responsible for online
campaigns must understand domain name analytics.
* Prepared for the Domain Name Image session at the
3rd annual Domain Roundtable Conference (www.domainroundtable.com)
in Seattle.
[1] The performance metric needs to be appropriate, such
as ROI. A measure, such as CPM, needs to be qualified for the
relevance to the audience.
[2] Measurable in that performance results can be statistically
verified.
[3] For example, the illiquidity of the marketplace can be
a blessing for advertisers. Advertisers are buying domain names
for the long term, so liquidity is not a major variable in their
decisions. By contrast,
domainers’ desire for liquidity and immediacy can present advertisers
with valuable opportunities.
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