P&G fought online advertising, and online advertising won

A tremor rumbled through the digital advertising world in July when Proctor & Gamble announced that they had cut $140 million of digital spend in a single quarter. P&G Chief Financial Officer Jon Moeller noted that the reduction had two causes:

[We made a choice] to temporarily stop spending with digital media outlets where our ads were not being placed according to our standards and specifications…. [We made] a choice to cut spending, from a digital standpoint, where it was ineffective — where either we were serving bots as opposed to human beings or where the placement of ads was not facilitating the equity of our brands.

Many (well, all) pundits assumed that the “places where ads weren’t being placed according to our standards” reference was a not-very-opaque reference to YouTube and the hullabaloo around brand safety earlier this year. And the “bot” reference is no doubt a critique of display advertising — both programmatic and premium.

Is this really P&G’s problem?

When P&G says anything about advertising, the industry listens. After all, the company spends about $10 billion a year on advertising.

Equally importantly, however, is P&G’s marketing track record. The company has 18 brands that do more than $1 billion of annual revenue. And really, most of these are commodities that consumers choose over a cheaper alternative (e.g., toothpaste, paper towels, dish detergent), so that branding must be really effective.

As a result, many commentators have drawn the conclusion that if P&G is cutting back on digital spend, digital advertising must be broken:

When one of the most sophisticated high-tech advertisers in the world decides it’s overspending on digital advertising and is able to very carefully remove the rot, thus bringing down its costs without hurting its revenues, other companies will follow, with some consequences for the relentless but often ineffective surge of digital advertising dollars.

A question of bots

Contrarian that I am, I believe that P&G knows as much about digital advertising as J.C. Penney knows about e-commerce — which is to say, not much.

P&G claims that a lot of its ad spend has been wasted on bots, which is straight-up ad fraud. Bots definitely exist, and ad fraud is still a big problem on programmatic networks. But if we assume that 50 percent of P&G’s spend reduction was due to cutting out bot traffic, it appears that the company spent $70 million on fraudulent traffic. In three months. Assuming a $2 CPM, that’s 35 billion fraudulent impressions.

Why did it take 35 billion impressions to discover the fraud, and why didn’t P&G ask for a refund from its ad networks and agencies? I mean, fool me once, shame on you; fool me 35 billion times, shame on me!

There are two very easy ways to avoid $70 million of bot traffic on programmatic networks. First, do a holdout test to assess incrementality. Second, measure KPIs at least weekly by publisher and channel and shift budget accordingly based on results.

My guess is that P&G — and their agencies — did neither. They bought traffic based on murky top-of-funnel “metrics” like “reach” and bought a lot of 35-year-old female . . . bots.

Ad exchanges need to do everything they can to eliminate fraudulent traffic, but blaming an exchange for getting scammed billions of times is a sign of laziness or ineptness. All digital marketers have to deal with fraud, but savvy ones have figured out how to avoid most of it.

Brand safety issues

Regarding P&G’s brand safety concerns, I understand how important it is for a brand to avoid showing up on racist websites, and it sounds like YouTube was a little too lax in its policing of content (they appear to have addressed this). That said, the internet is amazing because of the long-tail of the content available, which means that it’s impossible to run ads online with 100 percent certainty that an ad won’t occasionally show up on the wrong site.

As someone really smart (me!) said in The Wall Street Journal about digital advertising, “The advantage is you have access to a million publishers and a billion articles. The disadvantage is you have access to a million publishers and a billion articles.”

Hence, traditional brands that are accustomed to buying ads for specific TV shows at specific times are going to have to get used to a little more uncertainty with online advertising. Pulling all of your spend and going into a corner to sulk will just allow your competitors to take away market share.

The changing retail environment

Meanwhile, the world around P&G is changing rapidly, and generally not to its advantage. Historically, P&G has won by building great brands and then getting supermarkets to give these brands prominent placement in stores (and supermarkets were happy to do it — these brands sold better than lesser-known competitors). To put it another way, branding success gave P&G a real estate advantage.

But what happens when consumers stop going to grocery stores? Online grocery spending is projected to top $100 billion by 2025, and products like “personal care and beauty,” which P&G depends on, are more likely to be purchased online than offline. And, like it or not, TV advertising — the staple of P&G’s success — is giving up more and more ground to online advertising.

Meanwhile, there’s a little company in Seattle called Amazon that just bought Whole Foods and would love to be the grocery store of the future. Currently, if you do a search for “laundry detergent” on Amazon, P&G’s brands (and Unilever’s) dominate the real estate, just like in a supermarket. As many retailers have discovered, however, Amazon hates missing an opportunity to increase its own profit, and one of the ways it’s doing this is by private-labeling its own products. The “Amazon Basics” line now has over 1,300 products. And guess what? When you do a search for a product that Amazon offers in its Amazon Basics line, Amazon’s products get top billing.

Connect the dots between a grocery store acquisition and a growing private label line, and it doesn’t seem too crazy that Amazon will eventually offer products that directly compete against P&G.

And then there are upstarts like Brandless (disclosure: a customer of my agency) who believe that millennials care more about a company’s values and a product’s ingredients than lofty brand promises. Check out their product line — it looks awfully similar to P&G. Additionally, a recent Kickstarter by Brandless competitor Public Goods — raised 3X what it was originally seeking, demonstrating the appetite for non-traditional non-P&G personal care solutions.

Put all of this together — poorly executed digital marketing, the decline of the supermarket, and the rise of online marketing, Amazon and direct online sellers — and it seems to me that P&G would be better served disrupting itself than complaining about bot traffic.

Some opinions expressed in this article may be those of a guest author and not necessarily Marketing Land. Staff authors are listed here.