We just published our annual view of the world and this short essay is its preface. It was written pre-microhoo.
Since we wrote Interaction 08 much has changed. A major economic disturbance has dampened the exuberance surrounding the online advertising industry, reducing the rate of growth in advertising spend and reducing both the number of eye-popping transactions and the flow of venture capital into businesses that project an ad funded future. Through all this our volumes of spend and impressions continue to grow in both absolute terms and in terms of share of total media investment although the rampant growth in available inventory has placed downward pressure on costs per thousand across the board.
A minor change has also impacted this report as rather than one extended essay by way of introduction we publish a number of market reports alongside our usual array of market level data.
A number of macros emerge from our observations around the world. Search continues to be the biggest contributor to the digital advertising economy as advertisers exploit the consumer intention it represents. As search grows, so grows Google, in both volume and market share. In display the market is increasingly dominated by ad networks, with attendant behavioral targeting and others whose mission it is to drive measurable return on investment. Social media continues its extraordinary growth in consumer adoption and interaction, with Facebook and Twitter capturing all the headlines but still little revenue in proportion to the total time spent or impressions available. Brand owners are enthusiastically embracing these platforms to build applications and services yet their owners see little direct commercial benefit.
Video advertising continues to grow. The ascendancy of Hulu in the US and equivalent aggregators of professional video content elsewhere are finally giving advertisers an environment in which they feel comfortable. This in stark contrast to the alternative offered by much of YouTube which, despite being the dominant distributor of video online, remains a minnow in respect of the percentage of the inventory which is used by advertisers.
The arrival of the I Phone in the middle of 2007; and other smart phones, has finally pushed marketers into the mobile sector yet this has led to the development of services and applications rather than large scale ad campaigns. If it is true that always-on broadband has become the de facto operating system for life then the pervasive, always there, mobile device has become its ultimate peripheral.
While embracing the channel with enthusiasm brand marketers remain challenged by the digital opportunity. For many the negative impact on analog media in terms of audiences and attention has been greater than the positive potential of consumer targeting and the creation of intimate relationships between brands and their user constituencies. Big brands still require reach but fragmentation makes it hard to turn that reach into engagement. Brands know that digital channels can provide real engagement but are challenged in scaling that engagement to a level of reach that moves the commercial needle.
The continued ascendancy of search , ad networks (for however long they survive as agency systems get closer to the underlying inventory) and affiliate marketing programs reflects the desire to pursue the ‘last click’, an action at a moment in time to which advertisers can attribute an action that they perceive to be of commercial value. These represent binary moments of success or failure and all the comfort that those entail, a comfort not replicated by the concept of the post impression window the very purpose of which is to quantify inexact events. In challenged economic times the flight to perceived certainty is understandable and these applications of the channel prosper in the same way as sales promotion when the marketer’s priority is short term sales and the capture of increased market share.
This is, however, unsatisfactory for advertisers and publishers. The market cannot be sustained by an obsessive focus on the last click which represents what is typically referred to as the bottom of the purchase funnel. Purchase decisions and consumer behavior are now almost equally affected by broadcast, addressable (internet) and social channels and managing and activating this confluence of influence have become the heart of the communications channel planning challenge.
If we take a step away from our screens and our mice we might reflect on the historic purpose of brand marketing. One interpretation is that brand marketing exists to create social relevance for goods and services; to make a given audience aware of a brand and its function and to suggest its suitability in fulfilling a given want or need. Critically marketing seeks to convert the unconverted. If this is true, and you wish to trade at scale, then social relevance requires significant exposure of messaging and the need for that messaging to encourage a deeper brand experience via a retail channel, a web site, or a brand sponsored event or community.
The function of advertising is to create visibility for brands on the one hand and to act as a signpost to deeper experiences on the other. This is still true. But the bar for communication has gone up. Real value exchange between consumers and brands has become paramount. Much of current marketing science was built on the assumption that repetition of well crafted messaging to passive and somewhat attentive consumers was enough. Today the use of media, or more accurately screen time has become anything but passive. A generation or two ago children were berated by their elders for watching too much television. They were told that in earlier, more wholesome times leisure hours were spent making music, playing soccer in the park or hanging out with friends not sitting and staring at television. It may have been bad for kids but it was good for advertisers. Today those kids spend their time playing Guitar Hero (making music?), playing Halo on X Box Live (soccer in the park?) and on Facebook (hanging out with friends?). In short leisure has become active again with many attendant challenges for brand owners wishing to create social relevance in high involvement environments.
In response to this challenge advertisers and their agencies have realized that paid media channels alone may not be sufficient to meet their goals. Advertisers want to create media they can own and control. They want their messaging to earn exposure through peer to peer transmission via social networks and their messages to be discovered by consumers through those same channels and via search. In creating owned media advertisers are also realizing that commerce and services are of high value and that the attention given to brand web sites that provide neither is diminishing. A cursory glance at the size of brand web site audiences almost always leads to the conclusion that they make little contribution. As a result the emphasis shifts. Brand web sites are repurposed as repositories for content which is distributed more widely around the web and specifically into environments where consumers actually spend their time, a concept becoming known as edge marketing.
Many brand owners dream of the moment when their content or message ‘goes viral’ and becomes a YouTube hit. Few succeed. The ocean of content is deep and wide. Relatively few brand owners ask themselves the question ‘why would a consumer keep this piece of content, and why would they share it with others? This question has appeared on few creative briefs yet it seems to be at the very heart of peer to peer communication. It would be a mistake to think that viral hits are the only measure of success. More important is to engage consumers with brands and associated experiences to an extent sufficient to persuade them to capture that experience in text, pictures or video and to share the resulting content with others via direct transmission or their personal web spaces. The consumer, for better or worse, is now a fully fledged party to both the creation and distribution of brand content. The successful stimulation of such participation is indicative of engagement and also influences the prominence of brands in search listings. As the volume share of clicks on the major engines leans more and more towards the organic listings the value of prominence created by well-distributed content increases. Brands recognize how online channels influence the consumer, brand reputation and the propensity to act. But much of the proof is indigenous, comprising measures such as clicks to a destination or sales through an e commerce channel. In many markets this has still been enough to drive online advertising to between 15% and 20% of total media investment. Continued growth from this source will correlate with changes in broadband penetration and the proportion of GDP from e commerce.
The obsession with the last click and now the economic downturn have conspired to create a digital advertising landscape that is dominated by the pursuit (albeit a successful one) of direct response. If the pervasiveness and significance of the channel develops as we expect this cannot be adequate for businesses that seek to create, nurture and profit from brands.
The next major leap will come with wider recognition that online marketing is a significant driver of positive offline marketing effect. In most categories, and in most markets, less than 10% of all commerce is online so influencing the 90% is the greater prize. The work of many inventory owners including Microsoft, Google and Yahoo in partnership with research vendors ranging from Nielsen to Comscore and Dynamic Logic demonstrate that both brand metrics and sales are impacted by online advertising and that clicks are only a piece of the puzzle.