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 / Summer 2006 / Issue 43(originally published by Booz & Company)


The Future of Advertising Is Now

And what of the laggards? To be sure, there are still plenty of them. Today, most major marketers allocate only between 4 and 10 percent of their measured media spending to online advertising. But the reasons for this are generally institutional, not strategic. Many companies’ media budgets remain bogged down in a TV-centric model. These companies’ marketing departments are hampered by organizational inertia, uneven levels of consumer insight, spotty effectiveness metrics, and the continued dominance of television in their strategies, incentives, processes, and promotional calendars.

Consumer behavior has leaped ahead of the technological tortoises. Consider the automotive category. Some automakers can now correlate consumer usage of configuration sites — Web pages that allow buyers to experiment with color and trim packages — with subsequent orders. This allows automakers to guide shipments more accurately and reduce their own and their dealers’ inventory costs. (See “Building a Better Matchmaker,” by Maarten Jager and Steven Wheeler, s+b, Winter 2005.) Yet online spending barely registers as part of many automotive advertisers’ total budgets. (See Exhibit 1.) This is not because automakers prefer the status quo; it’s simply that the change requires alliances between dealers and manufacturers, and among their respective marketing, sales, and IT organizations — departments that are not used to moving quickly or working closely together.

Also holding back the laggards: They have difficulty seeing beyond the compelling environment that television had made available for marketers. Marketing metrics and agency economics are built around TV; TV gets marketers’ retail and trade partners excited; and creative people have gotten used to the format of the 30-second spot as a vehicle for communicating brand value and emotional appeal. But as broadband penetration increases, so do the opportunities to exploit video entertainment and advertising, in new interactive contexts. Online advertising already appeals to marketers simply because the gap between an advertising message and a consumer action (e.g., a registration, a request for information, or even a sale) is so much narrower online than in other media. Combine that benefit with “higher quality” advertising inventory (that is, it allows users to click through for more information or direct sales) and it’s easy to see why blue-chip, brand-oriented advertisers are flocking online. (See Exhibit 2.)

Storefronts in Toontown
It is striking to see how consistently conventional marketing wisdom has denigrated the idea that consumers want more control over, and interaction with, their information and entertainment environment, and that they will pay more for that. In particular, after several high-profile interactive television experiments failed during the 1990s, chastened revolutionaries returned to the view of television vaguely derived from Marshall McLuhan’s assessment of it: a “cold” medium for “passive viewers” who preferred “least objectionable programming” (a phrase coined by NBC programmer Paul Klein more than three decades ago). Television, many believed, would remain forever distinct, in design, use, and location, from the computer.

But passivity has proven to be a myth, and convergence, despite the taint the word gained after the dot-com collapse, has proven a reality. Devices that combine digital distribution, content management, and playback have already transformed music consumption. At 1.25 million downloads a day from Apple’s iTunes service alone, the digital download music market is steadily growing, while annual sales of compact discs fell more than 7 percent in 2005 (according to Neilsen SoundScan). With Apple, Google, and a burgeoning number of Web sites offering video downloads — both repurposed inventory and original material — the TV industry is close to the day when each portable video player is the front end of a network tailored for one individual.

Although many longtime television executives are watching the erosion of traditional channel-centricity with trepidation, others relish the opportunities. Comcast, the largest cable television company in the U.S., says 65 percent of its customers with access to video-on-demand use it, with new users accessing it on average 23 times a month. Opportunities are also arising outside the television sector. Apple has sold more than 8 million video downloads since it began offering them in October 2005. Time Warner’s Time Inc. publishing division recently introduced a multimedia Web site aimed at young men, replete with original on-demand video.

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  1. Des Dearlove, editor, Results-Driven Marketing: A Guide to Growth and Profits (strategy+business Books, 2005): On creating an ROI-savvy marketing department. Click here.
  2. Evan Hirsh and Mark Schweizer, “The Advertising Saturation Point,” s+b, Fall 2005: Discerning the overspend in conventional advertising budgets. Click here.
  3. Paul Hyde, Edward Landry, and Andrew Tipping, “Making the Perfect Marketer,” s+b, Winter 2004: Study from the Association of National Advertisers and Booz Allen Hamilton explores the challenges and opportunities that the media shift creates for marketing departments. Click here. 
  4. Maarten Jager and Steven Wheeler, “Building a Better Matchmaker,” s+b, Winter 2005: The future of automotive advertising starts with the dealer’s interactive “customer-sensing capability.” Click here.
  5. Paul Keegan, “The Man Who Can Save Advertising,” Business 2.0, November 1, 2004: Profiles Seth Haberman, inventor of the Visible World technology for targeting TV neighborhood by neighborhood. Click here.
  6. Nielsen//Net Ratings, “Working Women Online: Media Usage and Purchasing Habits of Online Working Women,” Washington Post/ Newsweek Interactive, 2004: The Internet as the window to the world for busy working women. Click here.
  7. Yuki Noguchi, “TV When — and Where — You Want It: New Video Technologies Free Viewers from the Couch,” Washington Post, February 12, 2006: Mark Burnett and other pundits on the “new prime times” of video-on-demand. Click here.
  8. Randall Rothenberg, “Bye-Bye,” Wired, January 1998: Looks ahead to the death of “big media.” Click here.
  9. Veronis Suhler Stevenson, “Communications Industry Forecast 2005–2009,”: Predicts growth in home video, Internet media, wireless content, and interactive TV. Click here.
  10. Mark Wallace, “The Game Is Virtual. The Profit Is Real,” New York Times, May 29, 2005: Unveils the remarkable global growth of World of Warcraft and other role-playing games.
  11. Nick Wreden, ProfitBrand: How to Increase the Profitability, Accountability, and Sustainability of Brands (Kogan Page, 2005): Cogent guide to sustaining brands in the new-media-driven “demand economy,” where customers expect their desires to be satisfied instantly.
  12. Yankelovich Partners, “2005 Marketing Receptivity Survey,”: Finds that consumers hate advertising, except the personalized kind. Click here.
  13. The Apprentice Web site, Season 2, Episode 4: Recap of the Unilever tie-in episode, in which contestants created a Dove TV commercial, after which Dove Web site traffic increased 1,500 percent. Click here.
  14. Jack Myers Media Village, Former CBS-TV sales executive’s Web site reports on declining TV ad sales (in May 23, 2005, archive) and other new media harbingers.
  15. For more articles on marketing, sign up for s+b’s RSS feed. Click here.
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