Advertising

I've been watching the hullabaloo over the weekend with Chris Brogan, who finally took the corporate coin and blogged for K-Mart - and unleashed a "sellout" blogstorm in response. Here is his justification of his activity (Twitter size abbreviation: They offered me money, I took it, my gig is social media consulting, this is it, I'm still a genuine guy so what are you all so cross about?)

Good point, and I think he's in the right. Man's gotta do etc......

Problem is - and its a lesson well worth learning for all Social Media people today I think - if one has built one's current reputation by rendering social capital (whuffie) unto the social media faithful, many of those same followers will not take it too kindly when one starts to pocket some of the hard capital that is Caesar's.

The flock perceive it as worshipping at a different god's altar, and react strongly if the transition is very sudden - they feel fleeced and shorn of their leader, and may move on to new pastures, but not before dumping a load of manure in the trough.

This post by Fred Wilson on this paper, about Comscore research starting to showing how Display Ads actually work, makes fascinating reading. People have always known that Display Ads do increase traffic, but it has been hard to establish good data so Search Ads have tended to be favoured in recent years. The Comscore data is interesting in that it starts to build the story for display Ads:



The diagram shows the raise in attention, and the slow decay over 4 weeks. Also in the report is information about the difference in overall reach.

....in the studies conducted by comScore, approximately 81% of the consumers who saw an ad received only a display ad, while a much lower 8% received only a search ad. When the lift factors are weighted by the reach of the ad, display ads typically emerge as being able to generate a higher total lift in sales.

In other words, you can't build brands with Search, and Display Ads' economics may be far better than anticipated - maybe better than search even. This is quite timely, as there have been quite a few arguments advanced recently that Display Ads will suffer far more than search in the next few years.

Zeitgeist time - I was reading an article in today's Economist about trends in online advertising when a friend emailed me today about a discussion with 2 marketing agency people, they were saying that the "Creatives" do not have all the powers they used to. I had picked up similar trends last year when researching the Future of Online Advertising work, but I suspect its becoming far more piquant as the downturn gathers speed - and as online advertising becomes ever more measurable, as the Economist article notes:

In brand advertising, “rich media” ads are taking over from banners. These allow users to interact by clicking, so their engagement can be tracked.

All this makes spending on advertising much less speculative, so that it starts to be treated instead as a cost of sales. This is one reason why online advertising should suffer less than other sorts.

In other words, its becoming clearer which half of advertising works, and the arcane creative arts will increasingly struggle to justify their place at table heads as measurement becomes prevalent.

Also, these notes on the New Advertising.

The industry is also cautiously excited about two new forms of online advertising. The first is video. So far nobody has found a way to advertise inside online clips on a large scale. YouTube, which Google bought for no less than $1.65 billion two years ago, is “a huge end-user success,” says Eric Schmidt, Google’s boss, “and we’re awaiting the monetisation.”

......

If something close to one is in fact near, it may not come from YouTube. Ads on Hulu, a video site that is a joint venture between Mr Zucker’s NBC Universal and News Corp, another media giant, appear to be selling well.

Our research for the Future of Online Media corroborates this, that quality video to quality audiences is gathering the "hit head" of video advertising leaving the rest to scrabble for the slim pickings in the long tail. But as for Social Media:

The other hope is for ads on social networks such as MySpace and Facebook. They are experimenting with a variety of advertising formats, though none has yet proved very successful. Their big weakness is that users go to social-networking sites to socialise, not to shop (as they might on search engines). Their biggest strength is that users spend so much time there. Two years ago 11% of time spent online was at Yahoo! and MSN, two web portals; now their share is down to 5%, and 5% of online time is spent at YouTube and Facebook.

Online traffic, in other words, is moving towards sites where advertising has so far proved ineffective and is therefore cheap. This, says Ms [Mary] Meeker, presents an opportunity for innovation and arbitrage by clever marketing managers as they cut their conventional ad budgets. It may also provide a glimmer of hope for the advertising industry as it enters recession.

Perhaps this is the last refuge of the unmeasurable artifice in Ads, at least for a while - so maybe all is not lost for the Creatives just yet......

Actually, I think the Creative will always have a role, its just that it was overweighted when Advertising was largely unmeasurable.

(There is also an article on Mobile advertising, saying its coming of age - but its come of age so many times before, one just keeps the virtual Barmitzvah tent open all the time )

There are Lies, Damn Lies, Statistics....and New Media Forecasts. Latest downgrade is to e-Marketer's Online Ads forecast, hot on the heels of its last downgrade just 3 months ago:

In revisions made Tuesday, eMarketer estimates U.S. advertisers will spend $25.7 billion on the Internet next year — about $2.7 billion, or 10 percent less, than a forecast from just three months ago.

The more sobering projections extend through 2012 when eMarketer envisions $37 billion being spent on U.S. online ads. That figure represents a drop of $13 billion, or 26 percent, from the 2012 estimates that eMarketer drew up in August.

Kudos to e-Marketer for shifting their position in a timely fashion, but we see a common pattern in these sort of forecasts (Online Advertising and Anything Mobile are about the worst) - absurd optimism in the early days, followed by downgrades (usually in the year later refresher report, which move the hockey stick down a bit). Its been clearer this time round as events have overtaken the annual "hide the forecast" tradition.

In a related issue, Banner Ads are under pressure - they have suffered from the classic "I know 1/2 of my advertising is working, but I don't know which half" issue, as Adweek notes:

Yet, as digital ad spending swelled by more than 20 percent over the past couple of years and many traditional brands started doing significant business online for the first time, few fretted over how to best measure the brand impact of display ads beyond the occasional Dynamic Logic survey. Now, the heat is on for many publishers, who are seeing campaigns that appear on their sites getting compared to easy-to-evaluate direct-response efforts.

“It’s really the question of brand versus direct response,” said Vivek Shah, group digital president at Time Inc., who recently characterized display advertising as being “under assault.” Said Shah: “In times like this, the balance can tilt towards direct. That’s a challenge for traditional content sites that rely on display ads.”

But that last comment is why I don't think banners will die just yet - Adwords just doesn't get the brand message out there.

Saw this graph on Nic Brisbourne's Equity Kicker.




Nic's analysis is spot on:

Nor are they the sort of growth rates that have made this space such fertile ground for startups over recent years. A rising tide floats all boats, but when the tide stops rising…

This chart nicely illustrates the scale of the growth we have enjoyed. Note also the similarity in the shape of the Q4 2007-Q3 2008 and Q2 2000-Q4 2000 curves.

I remain a believer in the secular growth story of the internet though, and the good times will return.

I agree...I recall in 2000/01 in all the doom and gloom, we were just watching the traffic go up month after month on our servers, and deciding there was a big disconnect between what the 'Net was doing and the market sentiment. And I think we are in exactly the same situation now, this industry is going to be at least as revolutionary as Telecom, if not the invention of the Printing Press.

Do you recall the furore when Facebook Beacon came out last year, and all the stuff Forrester put out about "Fansumers" or whatever (ah, the joy of persistence ). Anyway, someone made the graphic point that if you are talking with your mates in a bar, the last thing you want to see is some wally dressed in a Coke outfit barging into your conversation saying "hey, what you guys talking about - can we be friends" etc etc.

Anyway, looks like that penny is sinking in - Ad Age reports P&G man Ted McConnell, general manager-interactive marketing and innovation saying:

"I have a reaction to that as a consumer advocate and an advertiser," he said. "What in heaven's name made you think you could monetize the real estate in which somebody is breaking up with their girlfriend?"

'Who said this is media?'
He went on to apply a similar standard to the broader world of consumer-generated media. "I think when we call it 'consumer-generated media,' we're being predatory," he said. "Who said this is media? Media is something you can buy and sell. Media contains inventory. Media contains blank spaces. Consumers weren't trying to generate media. They were trying to talk to somebody. So it just seems a bit arrogant. ... We hijack their own conversations, their own thoughts and feelings, and try to monetize it."

Ah, the bubble finally pricked.....

That's not to say he believes P&G should end all involvement with Facebook. He cited Facebook applications as a potentially valuable vehicle for advertisers, one in which they can create an environment that's favourable for their brands and consumers alike, and also noted the power of the datamining:

He said a subordinate of his did an experiment in which he set out to use Facebook to find a 22- to 27-year-old female P&G employee living in Cincinnati "who likes sex and Cocoa Puffs -- that was literally the target ID he asked for Facebook to find." And he found such a person.

"So the targeting is fantastic," Mr. McConnell said. "You can do really amazing things. But I'm not so sure I want to be targeted like that. ... I don't think everything every consumer says to someone else and writes down is somehow monetizable by the media industry."

You know, I recall some people saying this a year ago and getting shouted down at the time. They were right, but what is interesting is how this view was deeply unfashionable then, as it contravened all the SocNet prayers, hopes and plans for acquisition.

I sort of feel the same way about Cloud computing and Location based services now - the New Blacks of these days.

More proof that Online Ads will not be the salvation of Ad based startups - Onlien Ad growth has slowed to GDP growth levels, according to recent data. The TechCrunch boyz did a little maths this weekend and found this:



Sez TC's Erick Schonfield:

For the purposes of this analysis, I took the total advertising revenues from both Google and Yahoo, including their network revenues paid to affiliates, the online revenues reported by Microsoft, and only the advertising portion of AOL’s revenues. There were other companies I could have added, but these four serve as good proxy for the overall online advertising market. Below are the absolute revenue numbers, broken down by company:

No doubt part of the decline is due to the rising dollar value globally, but its a clear trend. Explains why Freemium is the New Free

The NYT points to a presentation by Mary Meeker (yes, that one*) at Web 2.0 Conference on the Online Advertising world and notes that:

Her main point was that advertising and sales of technology products are very closely correlated to economic activity. And since both gross domestic product and consumer spending have started falling, the prospects for both don’t look good.

Over time, she said, advertising revenue grows and shrinks three times as fast as the gross domestic product. If G.D.P. is unchanged next year, which is Morgan Stanley’s current forecast, ad spending for all media will fall by 4 percent. And it gets worse fast. A 2 percent drop in G.D.P., for example, would bring a 10 percent reduction in ad spending.

For Internet advertising in particular, there isn’t enough data to have such a precise correlation. Ms. Meeker said that in the slowdown from 2000 to 2002, online advertising fell by 27 percent, although the Internet economy had been inflated by a bubble of venture-backed ad spending. This year, Internet ad spending trends are much closer to other forms of advertising.

Ms. Meeker didn’t specifically forecast what will happen to online ads. “Display advertising will continue to be challenged, but search will do better.”

Incidentally, I love Ms Meeker's term for "FreeConomics" - she calls it "Undermonetized Internet Usage Growth Drivers"

Anyway - we are picking up data that implies that online Adspend is effectively making a flight for quality, and sadly Social Media - in Ad terms anyway - is not quality, it probably will be consigned to Adwords level of low transaction cost advertising. As Ms Meeker notes:

.....there are so many Web pages coming from social networks and other sites advertisers don’t value that there will be pressure on ad rates. But this ultimately will turn around, she predicted.

“In ‘ 00 , ‘01 and ‘02, it felt like the technology world had ended,” she said. “The reality was eyeballs continued to grow, innovation continued to occur, and the revenue followed that.”

Things, as the say, can only get Beta

*Another reminder, if it was needed, that the wisdom of crowds is nearly always swayed by a message they want to hear. Run for the hills when Henry Blodget agrees with her - oops - he just did .

Confusing post from eMarketer here - says that they are shortly to give their Online Ad forecasts another haircut (a mere 2 months from the last one), yet the piece talks of the situation not being bad for online marketers?. The numbers seem to be from the last haircut, not the impending one as well..

The piece does articulate Online Ads' advantages though:

Marketers should rightly ask, “What is behind the bullish projections for online ad spending, especially when most traditional media are taking the financial equivalent of body blows?” The seven reasons are as follows:

1. The Internet is inherently more measurable and accountable than are traditional channels.
2. The Internet allows for better, more-granular targeting than do other forms of media. That reduces media waste and can save marketing dollars.
3. The Internet is interactive, thereby allowing for a higher degree of engagement with consumer and business prospects and customers.
4. Particularly among younger consumers, the Internet is accounting for a larger and larger share of total media time; numerous studies demonstrate that teens, millennials and other younger cohorts are spending more time online per week than they are watching television.
5. The Internet plays into the consumer-in-control movement and therefore provides new opportunities for marketers to be a part of their conversations about interests, attitudes, shopping plans and even brands.
6. New Web 2.0 phenomena such as blogs, social networks and Twitter provide marketers with the potential to gain rich insights into consumer behavior and attitudes (the Internet is like a perpetual focus group on steroids).
7. The Internet, unlike any other medium or channel, allows marketers to reach prospects throughout the entire consumer buying cycle, from initial awareness through pre-information-gathering to sales and post-sale feedback and support.

But we all know the big issue is understanding the metrics, and without that being solved its a real barrier to growth.

Nice piece in SAI on the probability that Online Display Ad revenue will drop in the next 2 years - especially this chart showing 2002/3.



Not good news for any Ad supported business plans out there.....

The SAI article deals only with Display Ads, I don't know if the assumption is that Search Ads will continue to grow. I suspect that they wll also suffer, as the drop in revenue is driven by people less willing to pay for advertising.