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May 08, 2007

Ad Spend Cut in Half?

There is a well-known lament by advertisers:  "I know half of my advertising spend is wasted; I just don't know which half."  This is usually attributed to one of three famous, early entrpreneurs of mass consumer product companies and retailers, John Wanamaker among them.

The thrust is clear:  historically, the effectiveness of "brand" advertising (~$200 billion last year in the U.S.) has been hard to check -- is my ad spend is reaching the right people? do those folks remember the brand message?, etc.  Principally, this was due to the lack of technology to check whether brand impressions reached the targeted audiences, and whether they remembered the message(s).

(BTW, much has been written about how this made for nice lifestyles for advertising agency execs and their clients -- marketing executives got to spend lots of money and build large organizations, while agency execs and creatives got to take all that money and do creative things with it (sometimes).  All the while, there was no way to see if it was actually cost-effective.  The kind of job I want in my next life.)

Brand advertisers, their agencies and online publishers are spending a lot of time these days trying to figure out how to effectively move brand advertising online.  Performance-based (cost-per-click) ads are, of course, growing like weeds.  But due to the paucity of great online content and the still inadequate safeguards against undesirable (even if unintended) adjacencies between online branding ads and content (an especially acute problem with user-generated-content), the transition is happening slower than everyone concerned would like.

Advertisers (and their agencies) claim that the draw of the web is the greater targeting capabilities they will have, as well as more (and more accurate) metrics around the effectiveness of their ads

But I wonder....

At an event for the Online Publishers Association (http://www.online-publishers.org/) a little bit ago, I made the following point during a panel:  "If (1) advertisers have historically wasted 50% of their ad spend offline (or, less metaphorically, a large percentage), and (2) if that's mostly due to inadequate technology to check targeting and effectiveness, and (3) the web offers better targeting and checks on effectiveness, does it follow that as brand ads migrate online that aggregate brand ad spend will go down by half?"

That's a lot of blood in the streets on Madison Avenue (and its ilk around the world), and a lot of unemployed marketers inside companies that heavily advertise.

If true, this is a big deal.

I'd love to hear further thoughts from readers on this.

May 8, 2007 | Permalink


The problem with this is number 3: the assumption that brand based advertising results can be measured on the web. I see the opportunities for measured response advertising increasing (such as CPC), but nothing has really changed with branding. It's still the same game. Measuring effectiveness is not possible at this point and I think it *is* effective, sometimes.

I had a little rant on this on my tangle when google bought doubleclick.

Posted by: Martin Wells | May 8, 2007 7:40:50 PM

I think the macro trend here is that the Internet is just a massively more efficient medium for everything. It's cheaper to produce, target and distribute *everything* (from video, to music and software itself), including advertising.

I absolutely agree with the assessment that ad budgets will go down.

I don't know if it will be on the order of 50%.

On top of that, from a creative standpoint, there is less of a need for any industrial or commercial model of content production (which I would say is generally ad-funded).

We are at the beginning of a shift where non-commercial creativity competes, and often wins, against for-profit "content."

(Analagous to Apache v. Microsoft, MySQL v. Oracle, etc)

The tools of communication are not proprietary to well-capitalized corporations; they are radically distributed among the population. So, the only barrier to communication is desire, not capital.

That is to say, no one needs to be able to make a buck off of their communications to justify the expense of producing and distributing it.

For the vast majority, the value of advertising income, etc, is minimal if not zero.

(Revver v. YouTube...who won that one?)

Posted by: Ethan Bauley | May 9, 2007 12:21:53 PM

the hope would be that the budget for the 50% that didn't work would flow towards programs that did deliver. The issue with lack of accountability isn't that we're constrained of quality inventory, it's that ad dollars and impressions were wasted because of poor targeting and measurement.

What will happen is that dollars will be allocated increasingly towards channels which yield a ROI above a certain threshold set by the advertiser.

Now if you believe what's going to be exposed is that 50% of spend is direct at low quality inventory which will never convert for any advertiser, then what we'll likely see is a dramatic increase in prices on quality inventory and a decrease in prices on low quality inventory. One could suggest that this would lead to a market dynamic where eventually the low quality inventory will be low cost enough to support someone's spend, and the high quality stuff will be bid up to maximum efficiency by those who can afford to pay.

Overall ad budgets could increase with the factors you're discussing because we'll have fewer wasted impressions. Every ad i see will be relevant to me.

Posted by: hunter | May 10, 2007 9:45:12 PM

While applying the scientific approach ("without measurement you're just guessing") to marketing in general (and advertising in particular) has become the standard in the last 50 years, a concern is that we are merely measuring tiny points of data.

The problem is that breaking down "effectiveness" into tiny discrete and measurable points of data - then tracking those points of data - and then aggregating the measurements and summing them - only gives us the illusion of measuring the actual results.

The challenge is to measure not just the points of data - but also all the connections and relationships between all these (myriad) points of data in order to come up with information - and thus knowledge.

Right now what we more see almost all the time is simply measured data giving us a sense of comfort in own decision making - rather than knowledge that allows us to make the correct decision. In other words - increased measurement is unlikely to create better results (and reduce wasted money) unless you're measuring the right thing - and unless the results of your measurement are both accurate and informative.

Agencies learned a long time ago how to design for measurement. The problem is that ads need to be designed for effectiveness on humans - not efficiency, and not performance against metrics. Know what I mean?

I can't see how a move to 'online' advertising is going to help this to be honest.

Posted by: Chris Tacy | May 14, 2007 5:50:33 PM

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