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Online advertising looking ahead (Part 8 of 9)

October 31, 2008

Looking ahead we see the emergence of three new models of advertising different from the mass-media-rooted interrupt-and-repeat model and the search-based targeting model currently in vogue.

The first model is the permission-based (opt-in) model, centered on engagement, not exposure. The second new model is the one of consumer empowerment where both the time spent with messages and even the generation of messages or word of mouth emanate from the consumer. The final model is a model of advertising as service to consumers.

It is my view that all three of the new models will override the push model of advertising that is based on interrupting large media audiences with a message as many times as the advertising budget will permit.

The following areas are of most interest when looking forward to the growth and development of the online ad industry

  • Relevance, Empowerment, and Authenticity
  • On-demand, participation, and Re-aggregation
  • Demographics, location, and behavior = Intelligent Personalization
  • Real-Time Targeting
  • Choice, Control, and Trust
  • “Webification” of Old Media
  • Cost and Revenue Models
    • Ad Blocking and Privacy Movement
  • Digital Marketing Vertical
  • Test and Experiment in Emerging Media

Relevance, Empowerment, and Authenticity
Understanding the impact of the internet is not found in the technology that enabled it. It is best understood by appreciating the behavior of successive new generations of people who approach and engage the internet (and life) in different and continuously evolving ways. Major portions of these generations did not grow up believing that you had to be at a certain place at a certain time to see, hear, or read something of interest to them. What seems new to many of us who grew up before these technologies were available has been available to them for quite literally all their lives. For the older members of these generations eBay and Amazon have always been there; for the younger ones, MySpace and YouTube have always been there.

These generations have also learned that there is advantage to collaborating and have turned traditional transaction economics on its head. They live in social structures that are both virtual and real. They give away music, songs, and extra storage space because they like doing so. To them advertising is not a bad thing; to them it is how you advertise relative to their interests and needs (i.e., search) that is important.

Today, any individual customer, and particularly one who has grown up using multiple channels of communication, has the potential of knowing as much as or more than any one individual seller about categories of products and their various selling prices. For example, over two-thirds of purchasers of new vehicles obtain detailed information about all vehicles in which they are interested in a fraction of the time it used to take to watch the television shows that showed the advertisements during commercial breaks.

As these consumers have come to understand the economics and the behavior of information providers, be it offline or online, they have also become more concerned and have raised questions about the value and the integrity of the information. Much market research tends to support the belief that consumers are not satisfied with information received through advertising. The same, with some variation, can also be said of the internet. Customers are now looking for information sources that not only are helpful in guiding decision choice but also can be trusted to provide unbiased information. Evidence is also beginning to come to light that enterprises can benefit from providing helpful and trusted advice.

On-demand, participation, and Re-aggregation

What this means is, first, electronic media are moving from a broadcast push, programmed schedule to an “I want it when I want it” on-demand schedule. Second, participation is at the core of everything from blogs to broadcasting to MySpace to Facebook to just about everything else. Third, a lot of marketing was traditionally about segmentation taking large audiences and making them into smaller audiences for targeting. In an on-demand world, you have audiences of one whom you need to reaggregate into large enough audiences to target with both scale and relevance—almost “backward segmentation.” The entire search phenomenon is all about how you reaggregate groups of a few large enough groups to market to profitability.

So, three key trends—on-demand, participation, and reaggregation—clearly play off each other, but those three trends seem to be driving a lot of the trends of where electronic marketing is going. These three forces have huge implications for planners. In a changing environment, you need to learn while you are doing. This is a very iterative model, and it’s not a model where you scenario plan and think and spend years and years writing decks. You do because things are moving too fast for you to think too long or research the situation too much; by the time you’ve thought your way through something, the world has changed. This brings huge organizational challenges, and the real challenges are not necessarily technological, but organizational.

It’s essential to remember that while the web is 2.0, people continue to be 1.0. While technology can morph quickly, behaviors and people and organizations and power still remain like soap operas. You have to embrace this change, and the only way to do that is really to make change be part of your homework. You should set aside two hours a week regardless of what level you are at (maybe it has to be on a weekend at home) to actually participate in a lot of these new roles, because only when you do it yourself will you understand what it implies both for you, your brand, your company, and your future.

Demographics, location, and behavior = Intelligent Personalization

All of this change requires dramatic shifts in thinking among both individual marketers and their organizations. Recognizing the changing consumer media landscape is one thing; the next key to success is leveraging technology to build stronger relationships with customers. Think about Nike’s inspiration to put iPods in their shoes. Nike identified that many runners are also passionate about music, especially when they exercise. Nike used technology to satisfy two important needs among their consumers, who are eating this stuff up.

Starwood Hotels is another great example of a company using technology to enhance the customer experience. The company has a great rewards program and a website loaded with convenient time-saving features for its most loyal customers. Starwood studied people’s passions for the brand, and built an experience that weaves together connections, rewards, and loyalty.

Bottom line: Don’t start your ad planning with a media spend allocation, but rather go back to the consumer to understand what drives people’s passion for your products and services and how you can use technology to deepen those relationships. And we believe that this principle will hold even for direct marketers who focus primarily on response metrics and sales. The future of direct response is measurable, meaningful brand interaction.

Real-Time Targeting

The head of online marketing for a major recording studio summed up the quandary he faced: “We release a DVD or new record about every two weeks. We have some general insights as to who the audience is, but there is little time to get any more granular than the basics.” While the studio’s time to market represented an extreme, the manager’s sentiment reflects a greater industry need for rapid and concise targeting methods. In the past, marketers gave up either timeliness or precision when researching their consumer behaviors, the conventional wisdom being that the two objectives run counter to one another. However, the online space has begun to address this trade-off as behaviors are captured at the moment they occur and are stored in massive databases awaiting analysis and action.

In the not too distant future, the recording studio will utilize those databases to instantly understand its audiences. Behavioral targeting solutions will be employed to analyze visitors to the websites created for upcoming theatrical releases. Every time a user comes to the movie’s site, the database will build a profile of the behaviors that person has exhibited in the past. Website visitors who exhibit the same behaviors will be identified in intricate detail and clustered together, with the clusters taking on a life of their own, much like the people that they describe.

The recording studio will suddenly move from a generic understanding of its audiences to a concise map of consumer behaviors by which to target its advertising. Using behavioral targeting ad networks, the studio will find millions of people online who look just like their consumer clusters and serve them an advertisement. The studio will have a repository of targeting data for use in planning sequels and DVD releases. It will also have research to support its offline marketing activities. Perhaps most important, it will have a way of uncovering the complex DNA of its consumer groups within days, even hours—something that would normally take months using traditional survey research methods.

Employing behavioral targeting solutions as a means to understand consumer interests requires two leaps of faith. The first is whether the people who visit the company’s website represent an adequate sample of current customers. The second leap is whether people’s online surfing behavior is an accurate reflection of their psychology.

“Webification” of Old Media

We believe the future of advertising lives at the intersection of media choice, consumer control, and consumer trust. As content choice increases and on-demand consumer experiences (control) become pervasive, consumers will look for trusted media brands to point the way. We believe trust or, more specifically, openness in marketing is a key factor to the future of advertising in a noisy, fragmented world.

Choice. Media is pervasive in today’s society. Limitless content can be consumed over a growing number of access points—in all rooms of the home, on the road, and at work (e.g., laptop and desktop PCs, mobile devices, TVs, iPods, gaming devices).

Control. On-demand technologies like digital video recorders, video on demand, iPods, and online search engines put consumers in control of their programming. These technologies will become pervasive across all media platforms over time.

Trust. As more and more choice and control become available, the importance of trusted media brands to help consumers discover, experience, and transact will grow. Over the next 10 years, trusted media brands that recognize the need to help consumers navigate through endless options will become the user interface to simplifying and managing choice. Media companies will fight to gain the brand permission to play this role, forming more relevant relationships with consumers, thus becoming even more important to advertisers.

Information on Audiences

Internet advertisers have different and more valuable information than is available from traditional media. With traditional media the advertiser typically has access to demographics on a broad audience group. Using the internet, advertisers have data on individuals. Whereas internet advertisers may know little about individual audience members’ demographics, they often have detail on interests, purchases, and locations. This data will allow far more precise targeting, but will raise the required skill levels of media planners as advertisers seek their targets in many micro-niches. As a special case, integrating the internet accessed from mobile devices (PDAs, cell phones, etc.), advertisers will direct messages to individuals based on physical location.

Intelligent Personalization

More information about an audience, in some cases individual preferences, will allow firms to conduct advertising campaigns with surgical precision. Advertisers will be able to maintain and reinforce the desired message across multiple media, and use behavioral information to dynamically adapt the message in real time. Amazon already uses recommendation systems to send site visitors personalized messages about products judged relevant based on past purchases. An extension is to combine data on past purchase behavior with search behavior to divine future intentions. Hence a person who researches information on Tonga could receive a campaign message that included travel guide recommendations or links to an online travel partner.

The expansion of the internet and the eventual transformation of all media into digital media means that consumers have increasing control over content. In an on-demand world, the consumer gets to decide when she wants to consume content and, to a large degree, whether or not she wants to consume advertising. While the internet has been the first true on-demand medium, other media are rapidly following. With the growth of the internet, the growth of digital radio, the increased proliferation of digital video recorders (DVRs), and the growth of video-on-demand (VOD) offerings, consumers are increasingly gaining the ability to consume media on their own timetables. With technology enabling the avoidance of advertising, marketers need to ensure their messages are better targeted to their audience and are relevant.

Studies have shown that, even when people can skip through ads in a DVR environment, not all ads are skipped. In fact, in many cases, consumers drill deeper into advertising content—reviewing longer-form commercials, for example—when that content is particularly relevant to them. Relevant content resonates.

In the online advertising world today, we have the capabilities to target and personalize advertising based on many variables, including segmentation based on past customer interactions, context, time of day, broadband connection versus dial-up, and many others. We also have the ability to “frequency cap,” providing a benefit to consumers who, even if they are interested in a product or service, do not want to see the same advertisement over and over again. Over time, and in emerging digital media, these capabilities will only get better. And the consumer will benefit. At aQuantive, we are working toward a day when no advertising dollar is wasted, when every marketing message is perfectly targeted and delivered to a person who is receptive to that message: the right message at the right time to the right person. While this may represent a digital nirvana that we may never fully achieve, the progress we have already made is remarkable.

Cross-Channel Creative Campaign

Delivering an integrated creative campaign is not a new problem for advertisers. Traditionally, advertisers have integrated among media alternatives in radio, television, newspapers, and magazines. The internet has complicated this challenge by sharply increasing media types to include websites accessed by personal computers (desktop and laptop), portable hand-helds, cell phones, and others. To be effective, advertisers will require a broad range of back-end technology managing digital marketing assets, to modify and encode them in real time and ensure appropriate delivery and tracking.

The Webification of Old Media

Online innovation will leverage old media and continually blur the lines between old and new media. For example, by integrating with Global Positioning System (GPS) technology, taxicabs in New York City can already display the closest automated teller machine (ATM) for a bank advertiser, or the nearest Subway franchise. Advertisers will be able to customize messages to specific, and sometimes unlikely, locations: For example, how better to target a beverage ad customer than with an online-enabled poster in a bar’s washroom?

More subtle options exist as well; the advertisements for clothing seen by a particular user can feature a model with the race, build, and gender of the viewer, dynamically and repeatedly updated. Similarly, cable infrastructure provides both internet access and television service to households that can be targeted with far more precision if technology enables economical deployment of creative campaigns. Ultimately, advertisers will converge behavior, identity, and location to deliver highly personalized messages as part of a unified campaign.

Cost and Revenue Models

Investment in personalized, unified, multimedia messaging should increase advertising efficiency. Revenue models will have to shift from variables like cost per thousand (CPM), awareness, and similar variables toward variables that get closer to purchase behavior. Some revenue models will focus on actual purchase behavior; others will focus on behavior like click-throughs that get closer to purchase. Advertisers have already been pushing agencies for pay-for-performance models; the internet will accelerate that trend. Concurrently, media owners that deliver performance should gain by reducing the advertiser’s buying risk through better segmentation and results-driven models. Average revenue yields per audience member should increase dramatically.

We believe online advertising will continue to grow at a rapid pace over the next 10 years as the internet influence accelerates. Internet ad revenue will grow by (1) generating incremental ad revenues to internet-specific platforms (e.g., search); (2) share-shifting revenue from traditional media environments to traditional media experienced on the internet (e.g., television vs. video); and finally (3) continuing to drive direct marketing dollars online.

The internet influence on traditional media and advertising is about technology as well as an approach or philosophy or way of doing things that is inherent to the internet—being dynamic, accountable, interactive, open, and communal. The knowledge and insights gained from building the internet into a $12 billion advertising platform over the past 10 years will have a fundamental impact on the way we market to consumers over the next 10 or 20 years through all media. At the most general level, the accountability and trackable nature of the online medium has brought a renewed focus to marketing effectiveness and consumer behavior across all media. The qualities that define the online programming experience (control, choice, convenience) have impacted and will continue to impact other media programming environments in a big way. Consider how online qualities like limitless access to niche content; consumer-generated content; search; and deep, rich, local content will impact what consumers expect of other media.

Reaching target consumers across multiple media and aggregating them in real time to meet advertisers’ needs will take advantage of personal information about the audience that is available in other media only in aggregate. However, these trends will give rise to some new problems:

Click Fraud

As payment systems come to depend more heavily on actions by customers, the opportunities for cheating increase, and any pay-for-performance scheme other than actual purchase behavior increases the possibilities of fraud. A critical issue for advertisers will be the level of trust they put in the specific media vehicle—the website, network, brand, or advertising system— that they choose to use. Advertisers may pay a premium for more trustworthy media vehicles. We can already see the signs of that trend in the price-per-click deltas between top-tier search engines and other search engines whose search traffic may be less engaged and responsive.

Automatic Censorship

When many small audiences are aggregated automatically in internet advertising, automatic censorship may occur due to automated algorithms that protect advertisers from objectionable content when searching for ad. Placement through internet networks may unwittingly censor news sites. For example, the New York Times includes significant content on war, violence, and other disturbing topics. Online “censorbots” from Google and others may block such objectionable content pages from advertising use and severely impair the online revenue model.

Ad Blocking and the Privacy Backlash

As advertisers increase their abilities to target people personally, individuals will demand an anonymous option to shield themselves from certain types of behavioral profiling. They may not be happy about being tracked across different media types. For example, a person using the internet for research on a personal medical condition may actively object to receiving messages for that condition. Making no distinction between an individual’s leisure interests and the workplace raises similar issues. Examples include dating and social activities, medical issues, political preferences, and career research. With these sorts of issues on the horizon, can marketing persona management and anonymous buttons on individuals’ web browsers be far behind?

The future of online advertising will rest on a balance of trust and information sharing: for consumers, the privacy they sacrifice and the control they relinquish to receive marketing messages of value; for advertisers, the expense and complexity from a logistical, creative, technological, and even regulatory basis of managing advertising campaigns versus the greater efficiency in audience targeting; and for media owners, maintaining the bonds of trust with individuals and advertisers by developing acceptable standards and ensuring that actual behavior is consistent with those standards.

Integrate Your Digital Marketing Vertically

The ability to gather data on customer interactions and on the performance of elements of the marketing mix is significantly enhanced in the digital world. From basic measurements of how effective advertising has been in generating online sales to how much time a customer has spent on your website, where the consumer has gone, where they dropped out of the purchase cycle and why, to more sophisticated measurements such as the impact of advertising on offline sales, online marketing has trumped its offline counterparts.

However, to be the most effective marketer possible, it is ideal to have a single view of the customer—that is, to be able to message to a customer across all touch points in a coordinated, coherent, and measurable way. There is a lot of talk about horizontal marketing integration across TV, print, and online media. And it is important to ensure that this is done as well as possible, with a consistent brand message and coordination among the different components of the various elements of the marketing mix.

What is often overlooked in this equation is the critical importance of integrating vertically within the digital channel. This integration across all digital channels (including display advertising, search, the website, email marketing, etc.) allows a marketer to have a single view of the consumer, enhancing the marketer’s ability to effectively and efficiently engage that consumer in a meaningful dialogue. As all media become digital, of course, this expertise and experience can be utilized to take on the challenge of vertically integrating all media. Eventually, this will include video on demand, IPTV, mobile, and other emerging digital media channels. In the meantime, tremendous benefits can be achieved by integrating within those components of the digital channel that exist today—which leads right to the final part of the marketer’s strategy:

Emerging Media

Today’s emerging media will be tomorrow’s commonplace marketing vehicles. And consumers all over the world will decide how quickly those markets evolve. It is noteworthy that the growth of mobile devices in some emerging countries far outpaces the growth of the personal computer. Technology companies around the world are making large investments in everything from video-on-demand capabilities to wireless infrastructure to the digitization of out-of-home advertising. Because it is impossible to predict the exact timing and location of these new developments, it is critically important that marketers be testing emerging media now. This does not necessarily require significant financial investments by the marketer. In fact, many of the emerging media do not yet have enough penetration to make a significant investment for a major advertiser even possible. Also, there are risks that can accompany new media opportunities, which necessitate caution. For example, today’s experimentation for marketers may be social networking, blogging, or podcasting, all of which present some risks to advertisers; tomorrow it will be something else. What is required is some investment of time and resources on the part of marketers and their agencies to sift through the myriad of choices and target the ones that offer the most learning for the minimum investment and manageable risk.

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