(Warning: This is a #longread that I’ve been marinating on for about a month now. I would highly advise you, dear reader, to take advantage of the Print functionality below or use a service such as Instapaper to enjoy when you have some good thinking time. Have a look and please share with others and share your thoughts in the comments!)
From time to time we all take some “facts” for granted and fail to question them until it is too late to adjust. For example, many of us grew up hearing the repeated fears that we will see human population grow at an increasing rate, and past the point of resource exhaustion. Futurists predicted that current growth trends would continue unchecked. This led to much worry over the past several decades, and even inspired the government of China to create a one-child-per-couple law.
But now we know better. We were silly to miss the fact that rising standards of living around the world would lead to a natural reduction in birth rates. While population is still growing, the warning signs are pointing in the opposite direction: Birth rates in some countries are declining at a rate below what is needed to sustain the current population, and some United Nations scenarios show that our population could shrink from a little more than 6 billion today to 2.3 billion by 2300. While there will be less traffic on your great-great-grandchildren’s daily commutes (by hover car, of course), a population implosion has its own dangers and would dramatically reorder societies and economies. I believe the false inevitability of population growth is mirrored by the false inevitability of advertising impression growth—and if you don’t readjust to this new reality, your business could be left in the past.
For ages we have heard the siren song of growing advertising spending, powered by the digital media shift and rise of ad-powered start-ups. Nearly everyone in our business excitedly shows upward trending prediction graphs of marketers’ new outlays on mobile, social, virtual gifts—you name it. Just this week Eric Schmidt, outgoing CEO of Google, spoke before the IAB to share his firm belief that the online display ad market—what many of us call “traditional digital” at this point—could rise to $200 billion in the near future.
This seemed high to me, so I went a-Googling to discover that J.P. Morgan claims today’s global display market is only $25 billion. Further, the global TV commercial market is $169 billion, and the entire advertising market has been fairly flat for years at a total of $500 billion. Unfortunately, Schmidt did not share his model with the IAB audience, but I do wonder how digital display advertising could grow at a 700% rate. In fact, I believe that the media trends we see today and increasingly in the future point to a world in which advertising spending might just shrink. Much like the false claims of population explosion, I believe a new world order is resetting old assumptions and the next evolution of marketing will usher in a world of fewer advertising interruptions. Heresy, I know, but please allow me to make my case…
Consumer Media Choices Make Mass Advertising Harder
One of the reasons we are accustomed to 3,000 ad messages per day and buy into the assumption that ad spending will only increase is that it has been relatively easy to create and distribute advertising over the last few decades. Mass media arrived in the form of newspapers, magazines, radio, and television. Following closely was the chance to do mass advertising; brands could create a print ad once and run it across a critical mass of millions of eyeballs. Enough people were moved to purchase products by these handful of ads that marketers could see sales as a direct consequence. Life was good.
But today, fundamental shifts in media habits and practices are making it much harder for mass marketers to hit their target audiences with impressions. Here are just some of the changes, which are only accelerating:
- We have gone from three television channels to more than 1,000 on most cable systems. Brands now need to negotiate media buys across dozens of networks in order to hit a similar critical mass. Many are now spending more for less in a handful of “mass-like” television programs. For example, viewership of this year’s Academy Awards was down 10%, while the cost for a 30-second ad was up 20%. Because audience is not guaranteed for advertisers, this translates into a 33% year-over-year increase in the cost per impression.
- People are multitasking in ways never seen before, and clearly at the expense of ad impression impact. In the near-past, some people flipped channels or walked out for a beer or bathroom break, but today’s TV viewer is habitually distracted. A recent study in the U.S. by Deloitte shows that 42% of people surf the ‘Net while watching, while 29% talk on the phone and 26% text.
- Our consumers have decided to use digital technology to shift media to their needs—not marketers’ needs. Once a group of people are given freedom and control, a funny thing happens—they like it and want more of it. So it’s not a surprise that time shifting of media consumption has grown thanks to DVRs, DVDs, Netflix, and Read It Later. Conveniently, these media shifting tools allow the consumer to skip over advertising messages. When we had no choice but to watch or page through advertising, we couldn’t complain much—but once we have the freedom to control what media we consume, we guard it jealously—and advertising feels much more painful to sit through. And no matter how “must see” a particular program is, there is simply too much other good content out there to hold people hostage to 20 minutes of commercials for every 40 minutes of content.
- People are employing tools to actively avoid advertising. A rising number of people are moving from “passive” to “active” advertising avoidance thanks to simple technology. Take Adblock Plus, for example, a free plug-in for the Firefox browser that removes 100% of banner ads from a Web page—often putting useful content and links in the ads’ place. You might think this is deployed by only a small fringe group of users—and you would be wrong. Adblock Plus is used by 12 million people on average each day, and has been downloaded 112 million times (84,000 per day). Compare that to a tool that has gotten 10 times the hype: Foursquare has only about 600,000 daily users, and it is downloaded 25,000 times per day.
- Government is limiting the number of impressions we see. Democratic governments usually listen when voter trends emerge. Europe continues to pass laws limiting everything from TV commercial time to product placement. In the U.S., the Do Not Call list was an overwhelming success, and now legislators are eagerly considering a Do Not Track law that will prevent banner ad targeting that our industry claims will help drive ad spend further.
- And while new media offers new advertising opportunities, it is still exceedingly hard to make them work. Take gaming, for example. This is one of the media choices that young men are leaving TV for. And for years we have read hype about how in-game advertising networks would be the prime time of the future. But then reality caught up. Game companies have found that it is too hard to build big enough scale to win mass marketer dollars, and the people who have paid $60 for a game don’t like the idea of having additional ads forced upon them. The general manager of EA says, “We actually aren’t getting much from ad revenue at all”—while his competitor at Activision laments that, “There was a time when we thought advertising and sponsorship was a big opportunity…”
New Media Can Make Fewer Impressions
Aside from these fundamental changes in consumer behavior, there is a dramatic change in how new media alternatives behave in terms of advertising: They allow for a lot fewer impressions, often of poorer quality. Let me take this as the cue to tear down the age-old assumption that advertising dollars will follow consumers’ media attention. Again and again we have been subject to a PowerPoint slide showing the percentage of time people spend with various media in comparison to the percentage of marketers’ budgets that go against advertising in them. Most recently, industry guru Mary Meeker presented this argument in an otherwise strong deck about trends in mobile.
A lot of smart people have pointed to this “gap” in spending, but I have heard none of them spend as much as one additional slide considering what could lie behind it. Allow me: This is not an apples to apples comparison. Advertising spending amounts are guided by much more than how much time consumers choose to spend. First, there is the quality of the creative platform—TV and print allow a much higher-quality ad experience and are much more “interruptive” than typical banner ads. Second, a lot of marketers are still struggling to build ROI models for digital while they have decades of experience and test results from traditional ad platforms.
And the future of digital marketing does not necessarily spell more opportunities for closing this perceived gap. The shift to mobile offers a perfect case study. This is another specific area that has gotten prognosticators excited. eMarketer predicts mobile will be a $2.6 billion market in the U.S. by 2014, and one mobile expert, Paran Johar of Jumptap, claims that, “Mobile advertising will eclipse traditional PC ads very quickly.”
Johar might be right, as each dollar to mobile could take $3 from display. The mobile screen (whether phone or tablet) is significantly smaller than a laptop browser window. By my back-of-the-envelope calculation, a consumer’s shift from a PC to mobile Web page is at least a 3-to-1 reduction in the amount of space available for banner ads. So, at consistent CPM rates, the move to mobile could shrink the ad market dramatically—or they would have to be 3x the CPM of display ads, which is so far not close to holding true.
Or perhaps mobile will get bigger because there will be a lot more ads squeezed onto the tiny screen, and ways for businesses to helpfully alert passersby of what is on sale inside their stores. Unfortunately, there’s another problem: Consumers already find mobile advertising to be the most disliked marketing platform, per this research by Advertising Age.
Other new media similarly might mean a trade down in the number and/or price of advertising impressions, and thus a contraction in the global market. For example:
- Hulu—One of the fastest growing “channels” is only willing to show one-third the number of commercials as network broadcasters show during the same programming. Its CEO has boldly claimed that “Traditional TV has too many ads. Users have demonstrated that they will go to great lengths to avoid the advertising load that traditional TV places upon them.”
- Groupon—Only one offer per city per day. This might grow to more offers, but they will increasingly be personalized—so you will get one, more-relevant offer per day.
- Twitter—Has added and plans to expand Promoted Tweets program to try to monetize the service. It will interrupt your Twitter stream with advertising, but if these are more than a handful per person per day, there will be a mass exodus of users.
- Facebook—Current advertising formats are few, small, and out of the way on the right. The company learned from MySpace that ad clutter leads to lost users. Unfortunately, that means fewer clicks and low CPMs. With more than 600 million highly active users, and an ad-building tool that can have your small business up and running in minutes, the company only reached $8.9 billion in display sales in 2010.
- Pandora—If you are a frequent user like me, you have likely noticed more ads between songs lately. But, again, there is a natural limit of only a handful of interruptions per hour of listening or you lose people to one of the many ad-free alternatives.
- AOL—Well, AOL isn’t a new company, but it is reinventing itself with a model that has a lot less advertising. AOL CEO Tim Armstrong strongly believes that, “There are just way too many impressions on the Web.” And he has put his money where his mouth is by redesigning AOL to reduce the number of banners per page—to the tune of a 25% drop in ad sales.
Efficient Targeting Means Less Spending
We’ve all heard the old saw about “half your advertising spending being wasted; you just don’t know which half.” Well, with the increase in targeting information and new ways to track actual purchase behavior, there is growing hope that marketers will be able to discover and eliminate the 50% (or likely much more) of spending that is wasted. So the multi-billion-dollar question is: What will they do with the savings?
I believe that the majority of saved dollars will be taken to profit, thus removing a significant amount of money from the $500 billion global advertising market. Shareholders have this odd desire to see companies improve profits, and too many CFOs are closely eyeing the marketing budgets.
What This Means to You
My first hope at this point is that you have become a little more wary of the hype that continues to plague the digital marketing world. I know it might sound crazy for a leader working in a large, global digital advertising agency to sound pessimistic, but the reality is that we all suffer when companies make poor business decisions. The last thing we need is another digital bubble that will cause marketers to overreact in a very negative direction. Instead of falling for the hype, marketers must examine the bigger trends and changes in the landscape and take the time to shift how they go about their jobs.
Here are three implications of the shifts in media and marketing that you must begin adjusting to today:
- From Impressions to Engagements—Now is the time to choose a new common denominator for marketing performance across media. As I hope the 2,000 words above made clear, the impression—while somewhat measurable—is more and more meaningless. Instead, a growing number of marketers and media companies are moving toward Engagement-based planning. I wrote a lot about this in my book and in this blog post, and just this week YouTube and the IAB came together to suggest a new engagement measure: the Cost Per View (CPV). The CPV is a way of pricing advertising or other videos in which a consumer actively chooses to push the play button. It is meant to complement an impression-based plan, adding some further performance data. Marketers must begin to measure engagements and start to build financial models that allow them to uncover the value of an engagement.
- From Paid Media to Earned and Owned—In a world where it becomes harder and harder to track down your customers and interrupt their attention, it becomes imperative to attract them with content that they choose to engage with. Of course, this is the story behind Marketing with Meaning—but it is even clearer in the growing recognition that marketers must create Earned and Owned media. Earned and Owned is not only often cheaper than Paid, but it delivers a higher-quality experience—whether it is Charmin’s iPhone app for finding a public restroom or Red Bull sharing “Drunkish Dials” from its consumers on Facebook. (Disclaimer: Both are Possible Worldwide clients.)
- Relentlessly Track to Sales Results—One of the most exciting things that I have seen in business is the rise of e-commerce, which allows companies to closely track the price and performance of every marketing decision and investment all of the way to the final sale. This is the main reason search marketing took off and Google is now a $30 billion/year company. I believe that every large-spending company must invest in tools and models to apply this way of making marketing choices—whether or not e-commerce is the way a sale is made. In this future, brand managers will come into the office and get a heads-up display of the previous day’s sales results, quickly alter spending on the fly, and measure the response in real time. If the Shake Weight can do it, you can do it. And we’d love to help you.
To quote Sir Martin Sorrell, “The 21st century is not for tidy minds. It’s messy.” The wrong way to behave is to sit on the sidelines and wait for new advertising media to evolve to meet your historic marketing model. On the other hand, just jumping on the bandwagon of hype can end up burning your business as well. I believe the right answer is to step back and look at broader trends in how people live and society works today—then invest time and money into building a new approach that beats the competition and meets customers’ needs.
This is what our agencies recently did by combining into a new global digital network with a purpose to create interactions between our clients and their customers. We saw a future and shifted multiple organizations into a position to survive, thrive, and lead. What will you choose to do?