Monday, April 03, 2017

Going Clear! The Digital Ad Industry's Supply Chain Revolution Just Happened

April 3, 2017 - There are about 121 billion cans of food and beverage shipped commercially in the United States each year. Do you know how many cases of botulism can be attributed to those canned comestibles?

Approximately one. Not one percent. One. Fewer than .00000000001% of all commercially canned food and drink are seriously harmful to human beings. The food industry's enviable safety record is due to decades of progress in the science, storage, shipping, self-regulation, and regulation of the U.S. food industry supply chain. 

Do you know how many seriously harmful advertising impressions float through cyberspace each year? Between 3% and 37% of impressions are fraudulently generated  by bots, according to the most recent study by the ad tech firm White Ops and the Association of National Advertisers. Add to those the valid ad impressions that appear on porn sites, or adjacent to pirated copyrighted entertainment, or near falsified content and other forms of "fake news," and - well, let's just say the incidence of bad advertising is at least a few hundred billion times greater than the incidence of bad canned food.

And therein lies the digital media, advertising, and marketing industries' challenge, and our goal. We must create a fully trustworthy supply chain. We must make harmful impressions as rare as harmful food. 

The big news of last week is that marketers, after a long decade of ostrich-like ignorance, are finally taking charge of their own digital destiny. JPMorgan Chase, an early adopter of "programmatic advertising," as simple  digital ad automation is confusingly called, looked at the 400,000 sites on which its advertisements run, and decided to do a human-eyes review to determine how many of those sites were safe for its brand. The giant bank eliminated about 395,000 of those sites from its media plan. And JPMorgan Chase discovered that its ad prices did not go up, and its ad effectiveness didn't decline.

"It's only been a few days, but we haven't seen any deteriorating in our performance metrics," the bank's Chief Marketing Officer, Kristin Lemkau, told The New York Times.

Consumer Safety First

The soft sound you hear is the song of sanity that at long last is bringing harmony to the dangerously discordant digital advertising supply chain. It's being billed as a big step forward for brand safety. But it's much more than that: It's an acknowledgement by the marketing and media industries that we are responsible for consumer safety, too.

JPMorgan Chase was following the program I outlined at the IAB Annual Leadership Meeting two months ago, when I told the thousand senior ad industry executives gathered in Ft. Lauderdale, FL that it was up to them as individuals and their companies to "repair the trust."

"This is not difficult," I said. "Simply ask your finance department to create a list of all your customer payables. Then commission a team to review the list to determine who your customers actually are, and what they do for a living. If they’re engaged in child porn or distributing pirated movies or generating neo-Nazi propaganda, or anything else you wouldn’t want your parents, spouses, neighbors, or children to know about, then stop doing business with them. And once you’ve reviewed and cleared your customers, do the same thing with your suppliers."

Rest assured that JPMorgan Chase is not alone in its effort to demand a clean digital advertising supply chain. Procter & Gamble has begun calling major media companies and advising them they must join the Trustworthy Accountability Group, the industry's supply-chain self-regulator, or they will be removed from consideration by the world's largest advertiser. The company is following through on a vow made by P&G Chief Brand Officer Marc Pritchard, also at the IAB Leadership Meeting, to force all its advertising vendors to comply with basic industry standards... or lose its business.

Compliance Calls Surge

Since Mr. Pritchard's speech, TAG - which was co-founded and is co-led by the IAB, ANA, and 4As - has reported a near-doubling of signups for its Registry, the basic "trust program" it offers. The Media Rating Council, the industry watchdog for authentic measurement practices, has reported a surge in inquiries from ad agencies about its viewability standard - a response to another of Procter's demands, that all its agencies follow only the MRC's  viewability standard for digital impressions. In response to a third P&G requirement announced at the IAB event, both Facebook and Google's YouTube have agreed to MRC audits of their measurement practices to assure they comply with industry norms.

"Partners, together, we're making progress and gathering momentum," Mr. Pritchard wrote me and ANA CEO Bob Liodice on Friday. "Let's keep it going!" 

Indeed, the digital publishing industry is. Google, embarrassed by a brand safety imbroglio in the U.K. that spread across the Atlantic, in which legitimate brands' advertisements were found on several dozen terrorism-related and other unsavory YouTube videos, implemented a series of changes to assure the quality of YouTube's inventory. Among the moves: removing flagged videos within two hours instead of 48 hours; adding new filters for advertisers to screen out hate speech, sexually suggestive material, profanity, and sensational or bizarre content; and partnering with accredited, third-party brand safety vendors to assure compliance with the procedures.

But there is much, much more left to be done. It's not just digital ad tech companies that are culpable - agencies, publishers, and the brands themselves bear responsibility. As I said at our January Leadership Meeting, "There is no one culprit in this ugly scenario. All of us in this room play a role: the marketers pressing for billions of additional impressions at unsustainably low prices; the agencies pressuring the publishers for more and more free 'added values'; the publishers so desperate for revenue that they run ads disguised as news and source 'audience extensions' on  unsavory sites; the tech companies whose algorithms drive consumers to deceitful  content; the journalists who complain but remain in their silos, unwilling to understand, let alone participate in correcting, their industry."

By putting its money on the line for standards compliance, Procter & Gamble launched a shot across the bow of entire marketing-media ecosystem. JPMorgan Chase doing a quality review of all its sites and eliminating 98% of its publishing partners  is an equally industry-shaking move. Together, these giant brands are saying the digital advertising supply chain isn't too complex for the average marketer to understand. They are saying that brand safety is a prerequisite for advertising that drives growth, and everybody needs to comply - or else. They are saying that industry associations and the work we do bringing companies together to agree on the standards and practices that should and must bind us matter.  

Leadership Priority

I have no doubt that P&G and JP Morgan Chase will be followed by a wave of big brands taking similar actions to secure the digital industry supply chain on behalf of brand and consumer safety. The Association of National Advertisers, declaring that "marketers must take their industry back," has made supply chain transparency one of the core objectives of its new ANA Masters Circle, an elite group of senior marketers tasked with making changes happen in the profession of marketing.

"It’s time for CMOs to demand a simpler, more-transparent, highly productive supply chain, one that aligns core metrics with goals for incremental business growth," the ANA says in its recently released 2017 CMO Leadership Agenda. "We can reach this objective if each CMO ensures their teams and agencies pursue the recommended actions for transparency, measurement, viewability, and ad fraud — while creating a highly productive, extraordinarily efficient, streamlined supply chain."

I'm pleased to say that IAB has been committed to the cause of supply chain trustworthiness
since I came to this job in 2007 and extolled the importance of "a supply chain that’s more transparent, less complex, and less costly" - so it's great to have the ANA as a partner in this vital endeavor.

Critics already are caviling that new demands for quality will definitively lead to higher advertising prices in digital media. Well, of course they will - for the same reason that food in supermarkets costs more than food that fell off trucks. There is no such thing as a free lunch - unless you want to risk botulism. 

Others fret that one of the glories of the Internet - the long tail of small specialty sites that generate so much valuable niche news, entertainment, opinion, and services - will be disenfranchised as marketers start limiting their programmatic buys to pre-qualified lists of publishers. To which I say: I have little doubt there are a hell of lot of long tail sites that made JPMorgan Chase's cut from 400,000 to 5,000. 

Besides, even the smallest hot dog pushcart has to follow the city's health code.

And finally, in no other industry on earth do retailers put goods on their shelves before checking that they're safe for human consumption. Wal-Mart doesn't do it, Kroger's doesn't do it, and we - the retailers of ideas, journalism, entertainment, and ads - shouldn't do it either. 

It's time for you - you brands, you agencies, you publishers, you tech companies - to build a real civilization in this murky swamp we've invented. It's time for you to follow the industry's health codes, comply with consensus standards, and stop the toxin of ad fraud, piracy, opaque metrics, and fake news. It's time for you to make our supply chain 99.9999999999% safe. 

Friday, March 17, 2017

Those Old Mental Models Got Me In Their Spell

March 17, 2017 - This week, the Interactive Advertising Bureau released the third iteration of our ground-breaking study, "The Economic Value of the Advertising-Supported Internet Ecosystem." The research, undertaken since 2009 by a team led by John Deighton, the Baker Foundation Professor of Business Administration at Harvard Business School and an authority on consumer behavior and marketing, found that digital advertising propelled $1.1 trillion into the U.S. economy in 2016— more than double the contribution it made in 2012, the last time Prof. Deighton explored the territory. The ad-supported internet ecosystem today accounts for 6 percent of the U.S. gross domestic product (GDP), representing a 20 percent compound annual growth rate from 2012 to 2016—five times the average American GDP growth during the same period. More than 10 million jobs, in every Congressional district in the country, owe their existence, directly or indirectly,  to Internet advertising.

But that phrase "directly or indirectly" seems to stick in some critics' craws. Fast Company magazine called the very concept of an ad-supported Internet a "fallacy." The study "counts in its top-line totals revenue and jobs from businesses that rely on the internet but don’t use an ad revenue model," reporter Mark Sullivan complained. The Wall Street Journal joined in the criticism. "The IAB is using a rather broad definition of what an internet business is, counting fully ad supported businesses such as BuzzFeed and Google as well as apps such as Uber," the newspaper grumbled. Jason Kint, CEO of Digital Content Next, objected: "A Harvard study literally categorizes the entire internet as 'ad-supported.' That's the most ridiculous overreach I've seen in a decade."

I think these journalists and trade group executives are hostage to an obsolete mental model - a paradigm that's unfortunately still widely held, and could be a significant obstacle for publishers, agencies, and brands alike.

Boxes and Slots

The concept of "mental models" was developed in the late 19th Century by the philosopher Charles Sanders Peirce, who was also responsible for developing the field of inquiry known as semiotics, the theory of signs. A mental model, Peirce said, is a form of human reasoning, a psychological representation of situations people could encounter or could imagine encountering. Peirce and his successors in the fields of psychology, philosophy, and cognition showed that these images of reality underlie our ability to anticipate and explain the world around us. 

Walter Lippmann's groundbreaking 1921 book Public Opinion - the foundational document for modern journalism, public relations, and advertising - employed the concept of mental models to explain how these disciplines helped people adjudicate between "the world outside and the pictures in our heads," ideally for the advance of liberal democratic societies and open economies. Thomas S. Kuhn, whose concept of paradigms and paradigm shifts in scientific communities transformed our understanding of the history of science, also owed more than a passing debt to Peirce

The word "advertising" calls up a mental model, and if you're over the age of 30, it's a fair bet that you share it with everyone in your demographic cohort. "Advertising" conjures forms of marketing communication that sit inside boxes on a page or screen, or time slots within motion picture narratives - ads and commercials, or, in the argot of media and marketing, spots and dots. 

But that's not what advertising is - not any more, and perhaps not really ever.

As long ago as the early 1980s, it was a commonplace that over a 20-year period, advertising spending had done a complete reversal, with some two-thirds of marketing investments having shifted from "above-the-line" media formats (that is, radio and TV spots, magazine and newspaper ads, and the like) to "below-the-line" disciplines, such as consumer promotions, trade promotions, public relations, and direct-response marketing. In other words, even then, advertising wasn't all - or even mostly - "advertising."

But was it ever? A tour through history shows that advertising used to be far more varied than prisoners of the mental model understand. In 1933, Procter & Gamble began directly producing, through its advertising agencies, the soap operas that framed its ads for Oxydol detergent. (One of Procter's agencies, D'Arcy Masius Benton & Bowles, still had a soap opera production facility in the basement of its midtown New York headquarters when I was covering the advertising business for The New York Times in the late 1980s.) Indeed, what we today call "branded content" infused early radio; the Young & Rubicam agency itself hired an unknown comic named Jack Benny and authored his famous on-air greeting, "Jell-o again!", on behalf its client General Foods. 

Another 21st Century digital construct - "native advertising" - was festooned across the first three seasons of "I Love Lucy" on CBS in the 1950s, with stars Desi Arnaz and Lucille Ball, in cartoon form, and live, in character as the Cuban bandleader and his lovably ditzy wife, touting the cigarettes of their sole sponsor, Philip Morris.

The phenomenon of content marketing wasn't limited to broadcasting. GQ magazine was launched in 1931 as Apparel Arts, a men's fashion catalogue and retail trade publication. To this day, fashion magazines happily and publicly skirt the boundary between editorial and advertising content, especially in print and digital photo spreads. It's a central component of their value proposition, to consumers and advertisers alike.

Arguably, the narrowing of advertising into the mental model "advertising" only really took hold in the late 1950s, with the industrialization of marketing communications that coincided with the growth of television. As head of NBC from 1949 to 1955, Sylvester "Pat" Weaver (a former president of Young & Rubicam) developed what became known as the "magazine model" of television advertising, by which multiple advertisers, rather than a single marketer,  sponsored a show. 

This innovation - which was boosted by the "quiz show scandals" of the era, which showcased to regulators and the public the uncomfortably direct power advertisers had over program content - dramatically increased advertising volume and advertiser visibility, even as it diminished their influence over content.  Network profits soared, and the multiple-advertiser model remains the standard for TV advertising to this day. (From the quiz show scandals also emerged the Media Rating Council, the ad industry's standard-bearer for media measurement.)

Industrial Advertising Paradigm

That industrial model of "advertising" transferred itself to the Internet. What is "programmatic advertising," after all, if not the mass-produced, mass-distributed spots and dots transferred from the era of mass media to the era of the Internet? But just as the real and diverse history of advertising belies the mental model that imprisons us, so too does the current reality of digital advertising defy that old mental model. 

It's not just that older concepts like soap operas and talent-voiced ads have found renewed life in the form of branded content and native advertising. Of more import, the lines that used to cleanly separate a product or a service from its advertising and from its retailing are themselves blurring.

I heard this firsthand last month at IAB@MWC, the annual thought leadership conference we convene at the Mobile World Congress in Barcelona, Spain. Leonid Sudakov spoke in great detail about his transition from the position of Chief Marketing Officer of Mars Petcare, overseeing advertising and communications for a portfolio of billion-dollar brands, to a new position as the company's Global President for Connected Solutions. He and the company had recognized that mobile applications and data could not only make their marketing communications more attributable and effective - they could inform, infuse, and even constitute new products and services. Some of those products and services Mars Petcare could give away to its consumers, to create or reinforce a relationship that would enable the sale of more pet food. But some of those new products and services could be sold independently, even becoming whole new lines of business. 

Among those new mobile innovations: Whistle, a "Fitbit for dogs" app it acquired last year that helps pet owners keep track of their pets' workouts. 

Is Whistle a service? A loyalty program? An ad? Content? A game? A marketplace? The answer: It's all of the above. 

I heard similarly from a raft of marketers, across a diversity of categories, who graced our stage in Barcelona. Lufthansa, Red Bull, and Procter & Gamble were among the brands that described the transformation of their marketing functions into innovation and R&D hubs.

Which brings me back to the complaint that the IAB/Harvard economic value study uses an "overly broad" definition of advertising, even including in its calculation of jobs growth and economic contribution companies like Uber, which "don’t use an ad revenue model." 

In Washington, D.C. yesterday, I had the pleasure of unveiling "The Economic Value of the Advertising-Supported Internet Ecosystem" with Prof. Deighton to a packed audience in an office at the U.S. Capitol. In the Q&A session afterward, I asked the Harvard Business School Professor about this critique. How could he justify including companies like Uber and Netflix in his analysis, I queried?

"We are incorporating and trying to encompass all forms of commercial and market  communication, even as they change into forms not previously known," Prof. Deighton said. An app, he offered, is simply a modern form of communication that calls attention to a product; the fact that it may also be part of the product itself is both material and irrelevant. "In times past, if you wanted a car service, you had to look in the Yellow Pages," he said. "The Uber app is a replacement for that, at the same time it is the underpinning of the company's service." 

"Make the Markets"

Or, as Prof. Deighton, who has built courses and an entire inquiry stream at Harvard on "Big Data in Marketing" based on his team's seven years of work with the IAB, says more formally in the study itself:

"One question the study seeks to explore is the extent of the ecosystem’s reliance on advertising to support it. Advertising can be read narrowly as payments by advertisers to publishers, following the precedent established in the pre-internet world. In that world ‘advertising’ did not cover advertising on so-called ‘owned’ media such as displays on the sides of a firm’s trucks and buildings, nor did it cover direct mail, catalog retailing, or telemarketing. However, in the digital economy, this distinction underplays one of the important economic consequences of the internet. The marketing effects of the internet ecosystem, particularly those of owned and earned media, are very substantial. Payments to publishers do not measure all that the internet does to make the markets that create the economy. 

"The internet, in sum, serves many commercial purposes besides advertising in the narrow sense of the word. Websites can serve as storefronts, point-of-purchase stimuli, as tools for conducting research online for offline purchase, and to transact online based on research offline. Websites can aggregate consumer reviews. Consumers can see products promoted and buy them in a single visit. They can download digital products and consume them online. They can share news about their purchases and opinions and review products and services on social media."

(Those who can take time away from tweeting should explore Prof. Deighton's complete description of the study's methodology.)

So, yes, welcome to the trillion-dollar Internet advertising ecosystem. If present growth trends continue, it will be worth $2 trillion to the U.S. within the next four years. Brands, agencies, publishers, and technology suppliers should embrace its diversity, for that is your opportunity to thrive. 

And that's how the mental model crumbles.

Sunday, May 30, 2010

Travels With My iPad

Like some fair portion of the world - well, to be accurate, my professional world - I've wanted to see how the new category of tablet devices (okay, let's be frank, it's a category of one) travel.

Yeah, I know, I'm the one traveling, and the iPad is my accompaniment. I left the laptop at home.

How'd it go? Pretty well. As both a work device and a leisure aid, the iPad acquitted itself with aplomb. Of course, I was prepared for its limitations and didn't expect too much - which is good, because there's much about this contraption that is not intuitive. My gut tells me that one day we'll look back on the iPad as the Model T of tablets: radically transformative, but also quite quaint.

Now, on to some hopefully helpful tales, told and typed from the terrace of my room at the Hotel Playa Sol in Cadaques, in the northeast corner of Catalonia.

The purpose of my trip was to facilitate a brainstorming session at the global management meeting of the great, London-headquartered creative agency BBH. (That's co-founder John Hegarty, whom I first met at an ad awards judging nearly two decades ago, to the right, above.) After that, I had the IAB Europe Interact Congress in Barcelona. In between, I had five days to kill. I considered flying back to the U.S. ... for about five minutes, after which common sense compelled me to spend the down time exploring parts of Spain's Costa Brava.

I bought my iPad on the first day it went on sale, so it doesn't have 3G capability. I did not intend to use it to give presentations - although I find it's excellent CPR that purpose, at least in a one-on-one setting. But I did need it for basic utilitarian purposes: to review (not compose) Powerpoints, store maps and other important travel and work documents, read, write, email, network. And blog, I guess. The hotels I'd selected all had WiFi - maddeningly, the expensive business hotels all charge exorbitantly for it, while my lovely, reasonably priced vacation hotel here in Cadaques offers it for free. So I assumed 3G would be unnecessary. I was right, but I had both my iPhone and Blackberry, in case of data emergencies.

I also brought the small Apple wireless keyboard. But I'll tell you: For a practiced journalistic typist like me - which is to say, a deployer of two to six fingers at a time - the keyboard proved somewhat superfluous. I'm typing this lying on my back in bed with the iPad propped on my knees in landscape mode.

An important early discovery was Goodreader, for which tip I have to thank Jason Klein of the Newspaper National Network. It's a superb document reader. For a traveler, it allows the construction of a terrific atlas. Just make your maps in Google maps, save them as PDFs in Firefox, then load them into Goodreader. Not only is this more customized than any paper map, but it fits far more easily in your hand while driving.

Apple has been touting the iPad as a new kind of media consumption device, and it is, in spades. In my hotels, in Starbucks, at the WiFi-included The Only Running Footman pub in London's Mayfair section (seen above, through a glass, darkly) I had an easy time keeping up with The Times, the Journal, Facebook, business email, and Tweetdeck, which on the 'Pad is as close to a new form of media as I've seen - the socially-edited publication.

Yes, Netflix streaming is cool as hell, too, but not overseas; the service's contracts with studios and distributors allow it to stream movies only inside the United States. But Apple's iTunes store is open for business, regardless of where you are. I assume Amazon is there for you, too, but I loaded all my movies and books ahead of time. I haven't watched any of the movies, though; I'm loving the iPad as a reader. I could never cotton to the Kindle, but I find myself poring through novels (on this trip, Theodore Dreiser's "The Financier") on the 'Pad. It's not great for reading while lazing by the pool in full sun - but we shouldn't be sitting in full sun now, should we, hmmm?

Sorry for sounding like a nanny there, but the iPad does that to you. At every turn is a reminder that Apple knows what's better for you than you do. Like Flash - the high cholesterol of Apple's world. It's bad for you, says the device maker, so we don't offer it. Problem is, the lack of Flash support really limits the 'Pad's utility as a Web surfing device. When trying to review in advance Catalonia hotel and restaurant options on a two-and-a-half hour journey on a WiFi-equipped bus, I found the 'Pad almost useless: Virtually all these retail sites had significant portions built in Flash. It's all well and good for Apple to wax on about the virtues of HTML5, but I wonder how many small retailers in southern Spain are going to rebuild their sites any time soon because of this ideological dispute. The lack of multitasking is also a major annoyance; throughout the trip, I found myself constantly shutting down applications to do a quick Google search, and then reopening the previous app to continue with my business.

Also (and this isn't really Apple's fault, although as the hands-on master of the iTunes App Store it must bear some responsibility) most apps simply aren't fully intuitive, and almost none come with good documentation. Given how much more expensive most iPad apps are than the iPhone's impulse buys, one's desire for better documentation is high. Working in Goodreader, BlogPress and other apps required frequent shutdowns in order to hunt Google for tips and tricks. And I still can't figure out whether BlogPress will allow me to center, boldface or italicize text (or spellcheck) as I can do on Blogger on my grownup Mac.

Much of the iPad, in fact, strikes me as forced infantilism. I spent one day in London meeting with Guy Phillipson and his remarkable senior team at IAB UK (shown above). We discussed the latest developments in digital video, social media, and many other things that simply aren't fully accessible on the 'Pad. Why not? It almost seems as if Apple is saying: Forget the past 15 years. Forget all the habits you've built as a user. Forget hyperlinking - for the most part, you can't seem to cross from app to app. (Venture capitalist Fred Wilson just blogged about this, but I cant link to him.) Forget socialism; very few apps make room for conversation. Forget your short attention span, your frantic multitasking, your need to know now and fix it now and publish it now. The iPad represents the opposite of those old Burger King commercials. Instead of "have it your way," it's "do it our way." Or don't dare do it at all.

This all makes me postulate that as the Model T of tablets (you can have it in any color, so long as it's black) will have to be supplanted by a more Alfred Sloan-like approach (a device for every purse and purpose), and we'll soon see more newfangled tabs that allow us to do what we want to do. For now, one lives with workarounds.

And truth to tell, it's not so bad.

I figured out I could email photos from my iPhone to myself, save them on the iPad, and upload them in BlogPress. (Or so I think - we'll soon know.) This will do until a more fully featured blog editor comes along. I'm frustrated that The New York Times app won't let me tweet stories ... but I'm emailing them a lot more than I used to, because I'm reading - really reading - them a lot more than I used to. I expect Microsoft will release app versions of its Office suite, but until then, I'm even struggling through learning Keynote. I don't want to; as good as it is, I spent too many years perfecting my Powerpoint skills to want to bother to absorb yet another storyboarding application. But I can see how these tablets will make life just a little bit easier - and lighten the load on my back.

But let's not dwell on such things here in Catalonia. Here, in the home port of Salvador Dali -

- let's celebrate instead real creativity.

And laud the ideas we can hatch, rather than the applications we hatch them with.

And the sun and the sea.

And the catch of the day.

And art that lives.

And wine and tapas.

And the meeting of the minds...

... Here in Catalonia...

... On the terrace of the Hotel Playa Sol.

- Posted using BlogPress from my iPad

Location:Carrer de Pianc,CadaquƩs,Spain

Tuesday, January 12, 2010

The iPad's Threat to Advertising

I'm less interested in the Apple iPad and the spate of other interactive tablet devices about to flood into the consumer marketplace than in what they represent: another in a long line of attempts to semi-privatize the Internet.

Most "device revolutions" fail. For every iPod there are scores of Nomad Jukeboxes (of which I was a proud and happy early adopter). But this new revolution just might succeed, because it's not about the devices; it's about the consumer behavior impelling their invention. And it's that real - or presumed - consumer behavior that's generating a proliferation of not-so-secret gardens on the Web, many of them device-based - a phenomenon Forrester's Josh Bernoff calls the "Splinternet." Don't look now, but your television, telephone, radio, TiVo, cable box, and even your desktop PC are or are about to become gated intranets - with significant implications for marketers, media and agencies.

The biggest issue is complexity - the bogeyman that has haunted marketing and advertising from the dawn of the ad-supported Web. Publishers are waxing hopeful that the iPad will resolve the challenges that have seen their businesses sundered; weeks before its launch, The New York Times's David Carr even labeled Apple's device a "savior," arguing that it "represents an opportunity to renew the romance between printed material and consumer." Yet it's that very romantic impulse that should serve as warning that a pre-nup is needed, for without continuing, concerted, cross-industry commitment to managing transactional complexity in the marketing-media supply chain, the iPad and its ilk might only make publishers' problems worse.

Portal Period

The semi-privatization of the Internet has been creeping up on us for a long time - almost as long as the Web has existed, in fact, and so-called portals attempted to become the controlling influence over consumers' surfing habits. The portal period is generally considered a failure -- sort of the Paleozoic Era of the Internet -- but that's unfair. Rather, the first decade-and-a-half of the Web's gestation were largely about its proliferation and diversity, with consumers seeking navigation through an unfamiliar maze. That made search engines more valuable than portals.

But the walled gardens have always been there, and they've been growing in influence. What are Facebook and Twitter, after all, if not gated communities, built on Internet Protocol (IP), that live within the confines of the larger Web? While they're generously forgiving fenced neighborhoods (anyone can move in, regardless of race, creed, color, or brand preference), they are walled gardens nonetheless. They have their own rules and regulations, codes of conduct, behaviors, mannerisms and lingo. To identify them with the vague techie term "platforms" obscures what they really are: private communities, like cooperative apartment buildings in the big city. They allow you access to the larger, opportunity-laden and riskier world outside, but you'll always have your safe haven to return to.

Changing metaphors, if the Web is a "cesspool," as Google CEO Eric Schmidt has famously put it, maybe these are country club swimming pools - bacteria-free places to swim with your own kind. But - and this is important - however removed these country clubs were from the cesspools, they were still part of the larger town. The waste water still flowed to the same place. The kids may have been richer and snootier than you, but they went to the local public school. The same has been true with the Web's country club pools - until now.

Although the new IP-fueled devices promise to infuse interactivity into the last remaining analog nooks and crannies of our daily lives, the communities guarded by them threaten to upend that earlier, comfortable symbiosis. These devices and their proprietors have the ability to lock the community gates much tighter - or, at least, make the community so self-contained that any impulse to leave is restrained. They take the dogma that still guides so many digerati - "information wants to be free" - and reveal it as little more than a silly, thoughtless mantra.

Amazon's World

While the iPhone, with its "apps economy,", is the readiest example of these device-based walled gardens, Amazon's Kindle may be a better one. The iPhone, after all, still hints at the larger world - and the larger World Wide Web; the iPad, which some first-day critics labeled "just a big iPod Touch," is even more directly a creature of the Web. The Kindle, although IP-based, is utterly removed from it. Indeed, Amazon's walled garden for literati is more akin to a company town, with everything from access to product offerings to pricing tightly managed. Even the famously controlling Apple was moved to promote its relative benevolence to the media industry, noting that the iPad will offer book publishers and readers a choice of two price points, in contrast to the (lower) one required in Kindletown.

In fact, Apple has been a paragon of openness, compared with such other walled gardens as Sony's Playstation and Microsoft's xBox. True, the music industry has complained bitterly about how Apple's pricing policy for music and forced unbundling upset the financial requirements of the major recording companies. But at the same time, I can get virtually any type of music - regardless of codec, seller, or price - onto my iPod. (To this day, I have vastly more tunes there acquired from eMusic than from the Apple Store.)

More and more, "degree of openness" is looking to be a - perhaps the - central strategic differentiator among the different walled gardens of the Web. My favorite new gated community - Netflix Streaming - is fairly closed. Although it's accessible through numerous network devices (it comes through brilliantly on my TiVo HD), its offerings are solely those Netflix makes available - one reason I believe Netflix will become a financing powerhouse in Hollywood and among independent producers before too long.

Another favorite of mine, Boxee (which I access on my 46"-inch Samsung through the ATVFlash package of Apple TV hacks), is reasonably open. It offers widgets for scores of online video purveyors, and looks like it wants to be a remote control and organizing tool for as much digital video content as exists. (Boxee's ongoing tussle with Hulu is evidence of the "openness" contests beginning to shake up the digital video marketplace.)

Open TV

Boxee, which has announced imminent plans to release a proprietary set-top box, may even be setting itself up in direct opposition to the television set manufacturers that are bringing to market network-connected HDTV's with apps built directly into the screens, in what look to be totally closed systems. This is an issue I expect Boxee CEO Avner Ronen will address in his keynote presentation next month at the IAB Annual Leadership Meeting.

"Degree of openness" is, as I suggested, a strategic decision companies will have to make. There's no morality attached to it, the information-wants-to-be-free crowd notwithstanding. Some companies will thrive by remaining as porous as possible, while others will succeed by locking their gates. Consider Citigroup analyst Mark Mahaney's recent research note on Netflix:

We believe that NFLX is benefiting from a materially improved all-in product offering with a) improved DVD-By-Mail delivery service, b) expanded Streaming selection (17,000+ titles), and c) materially improved user interfaces via gaming devices (xBox, PS3) and Web-integrated CE devices and TVs. The ongoing shuttering of DVD rental stores is also helping. And the end result is higher customer satisfaction (reduced churn) and deeper competitive moats. Add all this to a increasingly efficient biz model (rising Gross Margins), and you’ve got an Internet Core Holding.

"Deeper competitive moats" are something that, inevitably, marketers, advertisers and media will need to learn to cross. The iPad won't necessarily get them to the other side. Far from being their savior, it could turn out to be a version of Charon, ferrying them across the River Styx to Hades.

Seamless Scale

I'm not even thinking about the obvious calculations - such as, how strictly will Apple set the terms and conditions, including pricing and customer-data control, for publishers seeking to sell their goods onto the iPad? A much more serious question is this: How fragmented will the advertising supply chain become? In deeply practical terms, if you work in advertising,your future depends on how companies like Apple intend to answer that question.

Put simply, a company's opportunity to create, sell and use advertising effectively and profitably will depend on its ability to deliver it seamlessly across multiple devices. Fostering seamless delivery across multiple sites has been the rationale underlying the IAB since our founding 15 years ago. Yet as successful as we've been in standardizing advertising unit formats, measurement guidelines, work-flow processes, and the like, other central standards have proved elusive. For example, the creative agencies on the IAB Agency Advisory Board have said categorically that their single greatest obstacle to advertising effectiveness and growth is their inability to deliver the same rich-media ads to tens of millions of households across multiple sites because, as they put it, "the rich media toolkit differs too much from site to site."

The proliferation of device-based walled gardens risks making our complex supply chain even more fragmented and complicated than it's been. As Forrester's Bernoff wrote, "Web marketing has grown since 1995, based on the idea that everything is connected. Click-throughs, ad networks, analytics, search-engine optimization -- it all works because the Web is standardized. Google works because the Web is standardized. Not any more. Each new device has its own ad networks, format, and technology." The Apple iPad's lack of Adobe Flash - a core component of much interactive display advertising - only serves to underscore how splintered the advertising economy could become.

But I disagree with Bernoff's conclusion about the Splinternet. Don't "try to unify things again," he says. "The shattering cannot be undone."

Supply Chain Detente

It must be, though, if ad-supported media are to survive. This prompts two suggestions:

  • Device manufacturers and the proprietors of other walled gardens should work collaboratively to adopt consistent standards to allow the advertising and marketing economies to flourish. Beat your brains out competitively, but don't subvert the advertising economy. Join the IAB and contribute to supply chain detente.
  • To the degree that the walled gardens create impediments to scale, publishers need to find other sources of revenue. Media companies must redouble their efforts to add marketing services to their sets of offerings.

Monday, January 11, 2010

Will Congress Break Internet Advertising?

(This article was published earlier today in The Hill.)

The U.S. Congress – the place where former Alaska Senator Ted Stevens once declared the World Wide Web
“a series of tubes” – is not known for technological erudition, so it has wisely kept its hands off the Internet, the greatest economy-boosting innovation of our lives. “The last thing we need,” Rep. Cliff Stearns astutely observed just last week, “is a Government takeover of the Internet.”

I wish he’d tell that to Rep. Rick Boucher – his would-be partner on a still-unseen bill that promises to erode the burgeoning field of e-commerce, harm ad-supported news and entertainment media, and destroy the tens of thousands of small businesses in all 50 states that have come to depend on interactive technologies for marketing, retailing, and customer connectivity.

Writing last Tuesday in The Hill, Mr. Boucher declared his intent to introduce legislation to provide “some baseline protections in the online space” aimed at “protecting consumer privacy.” But within this seemingly laudable proclamation lies either a misunderstanding of how interactive media actually work – or an active desire to hinder the medium’s growth, and jeopardize the 3.1 million jobs and 2.1 percent of U.S. GDP that depend on it.

Advertising is the engine of the consumer economy, and fundamentally the only way American shoppers can compare prices, discover products, and learn about new stores and sales in their neighborhood – and the sole way businesses can get this information to them. Yet the Congressman wants to legislate its elimination. “If someone does not want a website he visits to use information it collects to deliver ads to him,” he writes, “he should be able to opt out of that use.” Worse yet, Rep. Boucher says “if a website wants to provide information to an unrelated third party, it should procure that Internet user’s affirmative opt-in consent.”

But the Internet is built on information – most of it managed by “third parties.” Indeed, about 90 percent of online display advertising is delivered by third-party ad-serving companies. Third-party management of the information units called “cookies” is what limits the volume of irrelevant advertising a consumer receives online. Rep. Boucher might as well title his bill “The Spam Preservation Act of 2010.”

But Rep. Boucher (shown left) isn’t putting only Internet infrastructure at risk. His most disturbing proposal is to place the burden for consumer privacy protections on individual Web sites ­- on the local newspaper’s dot-com affiliate, the cable network’s online feed, and the solo blogger alike. His legislation would force all publishers to implement cumbersome and expensive means to stop ad-distribution to any consumer who demands it, and shatter the systems that enable publishers to provide advertisers reliable measures of their circulation and advertising delivery – the currency that enables publishers to get paid for their work.

Why does Rep. Boucher want to imprison the Internet economy? He says his proposal will “encourage greater levels of general Internet usage and e-commerce.” But government intervention hardly seems necessary, given the enormous growth both have seen. A recent University of Southern California study found that in 2008, the average American spent 17 hours per week online, up from 15.3 hours in 2007 and only 9.4 hours in 2001. What were they doing? Among other things, they were shopping. Online retail sales during the recession-soaked 2009 holiday season increased 5 percent from 2008, with consumers spending $27 billion more than last year.

Everyone in this diverse, mushrooming industry would agree with Rep. Boucher that risks to data security and identity theft must be dealt with forcefully. But to conflate these legitimate dangers with the broader, fuzzier notion of “consumer privacy” is misguided and ultimately more dangerous than the original threat.

Our industry takes consumer privacy very seriously; after all, without the consumer - and consumer trust - there is no internet economy. This is why industry has moved aggressively to provide greater protections. In July, a coalition of five major trade associations, representing thousands of advertisers, marketers and publishers, released comprehensive principles for industry self-regulation, which would create strong enforcement of consumer privacy protections under the auspices of the Better Business Bureau. These principles embrace and expand on many of the concerns raised by consumer groups and by the Federal Trade Commission (whose officials have publically praised the coalition’s achievements).

This increasingly vigorous system of self-regulation and education is working. Even the Center for Democracy and Technology, a consumer advocacy group, in a tally of thousands of complaints filed with states attorneys general over Internet-related abuses in 2006-07, found only one case relating to privacy – a case already covered by existing law.

Rep. Boucher should take the advice of his putative co-author, Congressman Stearns. The Florida Republican says government regulatory “interference should be undertaken only where there is weighty and extensive evidence of abuse.” We could not agree more.

Sunday, November 15, 2009

Is Marketing a Strategic Resource or a Procured Commodity?

When Sir Martin Sorrell, Executive Chairman of the WPP Group and for two decades arguably the most powerful individual in advertising, appeared on The Charlie Rose Show last May, the conversation was more remarkable for what he didn’t say than for what he did say.

He spoke of the “significant shift to digital” spending among his clients, noting that 25% of the global marketing services group’s revenues now derive from interactivities. He said “the importance of technology in our business has mushroomed,” and spoke at length about Google, and about his own acquisition of the “remarkably successful” online advertising network 24/7 Real Media, and of TNS Millward Brown, his data, measurement, and analytics unit.

But not once did he mention his ownership of two of the greatest brand names in advertising, companies whose hostile acquisitions 20+ years ago put Sir Martin on the world map: Ogilvy and J. Walter Thompson. Although he nodded in the direction of “the great idea” – ad agencies’ value proposition for the better part of 60 years -- he also gave it the back of his hand. “People in the advertising business, in the traditional media advertising business, would say the message determines the medium,” Mr. Sorrell said. “I would say that has totally changed.”

But of course, it has not totally changed. Rather, it’s the ground on which one of the greatest battles in both business history and social history is being fought. The question at the heart of it, although never purely articulated, is likely to determine the fortunes of every company that sells goods or services to consumers or customers.

The issue is this: Is marketing a strategic resource or a procured commodity?

If you listen closely, you’ll discern that this question is tearing apart the entire marketing-media ecosystem, with combatants staking out positions on either side of an increasingly great divide. On one side, people are speaking the language of efficiency: of online networks, demand-side exchanges, real-time bidding, inventory and impressions, buying agencies and procurement offices, of driving the marginal cost of production and distribution of billions of commodity products called banners, spots, and pages as close to zero as they can. On the other side of this gap are people speaking the language of growth: of brand affinity, premium price realization, consumer intimacy, dialogue, social media and the social graph, and of the insights that can generate consumer satisfaction and new revenue streams.

At times, the fissure seems akin to a civil war, with brother fighting brother over unconsidered ideologies. Holding company owners are battling their own agencies. Brand makers’ Chief Marketing Officers are fighting their companies’ Chief Financial Officers. Measurement companies are measuring the wrong things, incurring the ire of marketers and media alike. Advertising pricing systems in place for generations are coming under fire. Publishers’ sales forces are trying to keep up with the mixed messages.

Meanwhile, the people who really matter – the Chief Executive Officers at consumer marketers – are just beginning to wake from their inattention to render a verdict on where their funds will flow. I’m hoping this analysis – admittedly quite long, and reeking of history – will help.

Marketers and Citizens

Strategic resource or procured commodity? The question is of vital importance now because the investments marketers are making, on their own or with the guidance of agency and media partners, is influencing the way they conduct their business. And because their business involves advertising, the fuel that has powered the news and entertainment industries for more than a century, marketers’ decisions dramatically affect how citizens perceive the world around them.

The most prominent example of this disjuncture’s impact, of course, is the distress in the newspaper industry. Having opted at the dawn of the interactive era to distribute their online editions for free in order to build the mass audiences desirable to large brand advertisers, the newspapers (which had been losing readers for decades) found after a burst of new attention that they had forged a marketplace accustomed to accessing news at no charge. When oversupply of ad inventory – an inevitability, because the marginal cost of manufacturing that ad inventory is near-zero -- started pressing their online pricing downward, they did not have this vital secondary revenue source, paid subscriptions, to fall back on.

As former Wall Street Journal Chairman and CEO Peter R. Kann wrote in that paper recently, the business model of newspapers’ free online editions “does not begin to cover the cost of significant news reporting.”

“So the online editions with growing audiences – largely cannibalized from print audiences – rely on the poor print editions for almost all the news they give away,” Mr. Kann continued. “Sadly, there is less and less of that, and the ultimate loser, of course, is the public.”

Another, more recent example of the commodity-vs.-resource confusion is the effort by many of the large ad-agency media-buying groups to disenfranchise branded publishers by launching
their own “demand-side platforms” – essentially, stock exchanges for the trading of online advertising inventory. In recent months, WPP launched the B3 network, whose goal is to “basically create custom audience networks for advertisers,” WPP Vice President Brian Lesser told Advertising Age. Publicis, the French marketing services conglomerate, is introducing a similar trading platform in its Vivaki Nerve Center unit. Havas, another French holding company, is starting a trading unit called Adnetik. MDC Partners, a Canadian agency holding company, has opened Varick Media Management, which its president has described as a “media hedge fund.”

Ostensibly, the purpose of the trading platforms is to provide data that will help agencies “optimize” advertising for their clients – “optimize” being the catch-all jargon these days that covers everything from providing insights on consumer behavior to finding ad placements that generate more demonstrable returns.

But the real purpose – and the reason publishers are so concerned – is that the agencies plan to use the publishers’ ad inventory to identify likely target consumers, and with that specific data captured, attempt to find those same consumers on less expensive “long tail” Web sites that are in the agencies’ proprietary networks, a technique known as “retargeting.” As Vivaki President Curt Hecht told Ad Age, “In our first phase, we are moving clients into the audience space at scale and around inventory where they will feel comfortable with their brands. In the second phase, we'll start to grow our reach.”

Or as Adnetik Managing Director Nathan Woodman more bluntly told an Advertising Week audience at a session on demand-side platforms sponsored by ContextWeb, “You have to value the media and you have to value the audience – and do them independently. We hope to do that in a way that guarantees for our advertisers a buying efficiency: they will never pay more for an ad than it is worth.”

The ordeal of the newspaper industry and the opportunism of the agencies would seem to have little in common. But both derive from the same intrinsic belief: that marketing, necessarily realized through media channels of various sorts, is essentially an undifferentiated good – a basic thing, a mere mote, that can be mined, refined, bought, sold, traded, and exchanged. Whether it’s called “ads” or “impressions” or “inventory,” marketing, in this view, is nothing more than a pure commodity, no different than crude oil, natural gas, or bituminous coal.

It’s this point of view, driven by media agencies, many technology companies, and accepted by many publishers themselves, that underlies much of the tension in the advertising industry today. Agencies profess to have little choice but to consider themselves commodity processors. "When you are on a fixed-commission model, which is typically the way the media business works, you're ability to test is totally constrained because there's certain things that might not work initially and you can't run those because they won't perform usually,” said Matt Greitzer, a vice president of Razorfish, the digital agency recently acquired by Publicis, at the ContextWeb event.

Adnetik’s Mr. Woodman was even more direct. “A typical agency model is fee-based or hours- based; the incentive is to consolidate -- the only way the agency makes money is by putting less people against the task at hand,” he said. “So we are in a situation where the staff is completely over-worked and you cannot do these innovative many things because, in essence, the agency doesn't have the bandwidth to do so.”

Spots and Dots

For the agency business, this assumption – that an ad agency’s job is to process “spots and dots” the way a pit broker processes stock trades, rather than to drive the client’s growth through innovation -- actually represents a return to its roots… and a reversal of agencies’ prevailing wisdom for the last 60 years.

The first advertising agents of note – notably the New Yorker George Rowell -- began as media
resellers, purchasing newspaper space in bulk and retailing it at a profit to local merchants and patent-medicine barkers. Soon, the brokerage model became dominant, with advertising agents eschewing the own-and-resell strategy in favor of the less risky middleman approach, in which they earned commissions on sales from the papers and magazines for the ad space they sold on the periodicals’ behalf. The first two ad agencies of note, J. Walter Thompson and N. W. Ayer, were built on this foundation – although Ayer’s innovation was to take the fee from the client rather than the media.

Services, notably copywriting, consumer research, and media research, emerged gradually; Rowell published the American Newspaper Directory – the first syndicated research in advertising history – in 1869, and Ayer hired its first full-time writer in 1892. Importantly, though, all revenues came from commissions on media; the additional services, provided gratis, served only to protect the fat margins agencies earned from media buying, which were the source of agency profits. Why? As I’ve written before, under a commission system, each insertion of an advertisement is incrementally more profitable than the last insertion. Treat ads as unvarying commodities, and agency margins can skyrocket.

The conflicts of interest inherent in this procurement-dominated industry were apparent early in advertising’s evolution. In one of the first industry exposes I have found – a 1930 book titled Our Master’s Voice – Advertising, a disgruntled ex-copywriter named James Rorty decried the deceit he saw in this system:

The advertising agency is thus in the somewhat ambiguous position of being responsible to the advertiser whom he is serving but being paid by the advertising, publishing, or other advertising medium, his commission being based on the volume of the advertiser’s expenditure. Objection to this commission system of agency compensation has been chronic for years… But the commission method of compensation has persisted and is a factor in the endless chain of selling that links the whole advertising apparatus.

How lucrative was this “endless chain of selling” for the agency business? Many years ago, I sat down with Harry Paster, the late, great, longtime executive vice president of the American Association of Advertising Agencies, and he gave me the basic tutorial on agency economics: 50% payroll; 6-8% rent; 10-20% overhead; 22-34% profit margins.

“That’s it,” Harry told me. “That’s the whole thing.”

Moreover, he added, “It gets easier as you get bigger.”

The best evidence of that was the growth of the Ted Bates Worldwide agency, as engineered by the Madison Avenue legend Rosser Reeves. To clients, and in his 1961 best-seller Reality in Advertising, Reeves, a copywriter by background, argued that for an advertising campaign to be successful, it was best for it to say one thing, in exactly the same way, ideally forever. He called this unvarying underpinning a “unique selling proposition,” or U.S.P. He defined the U.S.P. as “getting a message into the heads of most people at the lowest possible cost.”

Reeves’s argument was simple: Unless a product becomes outmoded, a great campaign will not wear itself out. He counseled his clients to seek vast reach for their ads, saying, "If 90 percent do not remember it, the story is certainly not worn out." Thus early television was blanketed by such Bates campaigns as “Wonder Bread helps build strong bodies 12 ways” and “M&M’s melts in your mouth, not in your hands.” Notably, the U.S.P. was meant to apply not only to an ad campaign’s mission, but to the specific advertisements themselves. As he related proudly to the author Martin Mayer, he was once entertaining a client on his yacht, when the marketer idly inquired what the hundred people who worked on his account did. Reeves answered: "They keep you from changing your advertising." The tactic was certainly successful: Reeves publicly boasted how one client spent $86,400,000 over the course of 10 years “on one piece of my copy.”

That unchanging copy – commodity advertising in its purest form – made Reeves (pictured left) and his
acolytes fabulously wealthy. When Reeves’s successor as chairman and CEO of Bates, Robert Jacoby, sold the agency to Saatchi & Saatchi in 1986, he personally pocketed $110 million – more than 20% of the total sale price.

But there had always been an undercurrent of discontent in the agency business – a minority understanding that there was a better way to serve clients and consumers together. James Rorty gave voice to this in 1930. Having gone independent with the slogan “The Less Advertising the Better,” he pursued clients with an argument that sounds, 80 years later, astonishingly like those offered by many in our ecosystem today. Here is his pitch, aimed at a fictional industrialist he named a Mr. Hoffschnagel:

Mr. Hoffschnagel, you and I are practical men. I don’t need to tell you that advertising is not an end in itself. Neither is selling. The end, Mr. Hoffschnagel, the true objective of the manufacturer and dispenser of products and services, should be the efficient and economical delivery to the consumer of precisely what the consumer wants and needs: what the consumer needs to buy, I repeat, not what the manufacturer needs to sell him. In any functional relationship between producer and consumer, advertising and sales expenditures are just so much frictional loss; in the ideal setup, which of course we can’t even approximate under present conditions, released buying energy would be substituted entirely for the selling energy which you now spend breaking down ‘sales resistance.’ My task, therefore, is to redefine and reinterpret your relationship with your customers; not to pile up sales and advertising expenses… but to cut them. What do your customers want from you? Service! What do you want to give them? Service! Not advertising – the less advertising the better – that’s just so much friction and loss. But service! The end, Mr. Hoffschnagel, is service!

It is a wildly contemporary argument: Advertising is a service that in turn enables marketers to provide services to their customers – in contemporary parlance, a solution. Advertising agents, agencies, and by extension media, Rorty was the first to argue, should become solutions providers.

Cost-Saving Creativity

The next to take up the call, to claim that the Emperors of Commoditization like Rosser Reeves had no clothes, were advertising’s creative revolutionaries of the 1950’s and 1960’s.

Fed by stories of bell-bottomed copywriters, pot-smoking account executives, and art directors threatening to jump out windows if their campaigns weren’t approved, advertising’s “Creative Revolution” has come down to us as the unbridling of a Dionysian impulse in the agency business. But it was actually an evocation of the discontent true business strategists and service providers felt toward forebears whom they believed had sold clients a bill of goods. Their only weapon at the time was creativity, but creativity had a pure logic underlying it: the logic of efficiency, born of effectiveness.

“Properly practiced, creativity must result in greater sales more economically achieved,” the Marat of the Creative Revolution, Bill Bernbach, said. “Properly practiced, creativity can lift your claims out of the swamp of sameness and make them accepted, believed, persuasive, urgent.”

His fellow revolutionary leader, David Ogilvy, also saw that creativity was a strategic resource that agencies had a duty to apply to campaigns. Taking a swipe at Rosser Reeves, his one-time brother-in-law, Ogilvy (who took inspiration from direct marketing, and saw no contradiction whatsoever between “brand image advertising” and “advertising that sells”) proclaimed it was “brand personality,” and not “any trivial product difference,” that drew consumers to products. He and his fellow revolutionaries were steadfast in affirming that creativity was a service that rendered advertising more effective, thus saving their clients money.

The creative revolutionaries knew exactly what they were doing, and felt morally and professionally committed to it, even if it entailed some sacrifice. “Bufferin and Anacin, the Ajax tornado, were repeated and repeated and repeated; the Volkswagen campaign was not,” Bob Levenson, Doyle Dane’s longtime creative chief, the leader of its flagship Volkswagen account, and today an advisor to the television show Mad Men, told me in 1992. “I mean, we did a lot of print advertising, far more than television, and very rarely did an ad run twice. It was a different game. We did 12 ads a year, one a month. That was how the work requisitions came in. And occasionally you'd repeat an ad, but it was the great exception. It was not like pound-it-in. It was much easier to do it Rosser Reeve's way, and it was much more profitable.”

The premise – that creativity is a customer service that builds value for a marketer – was explained to me years ago by Jeremy Bullmore (pictured right), once the head of J. Walter Thompson’s U.K. operations, today a non-executive director of the WPP Group. When I asked him why the Creative Revolution swept the ad industry and trounced the prevailing commodity strategy, he
pulled from his bookshelf The Act of Creation by the essayist and critic Arthur Koestler. In it, Koestler argued that “emphasis and implication,” while complementary literary techniques, affect readers differently – an argument that applies equally in marketing, Mr. Bullmore said. Emphasis – Reeves’ U.S.P. – “bullies the audience into acceptance,” he said, quoting Koestler, while implication, Doyle Dane Bernbach’s favored approach, “entices it into mental collaboration.”

It’s hard to overstate how controversial the Creative Revolution was in marketing. No less an eminence than the pollster George Gallup attacked it, calling brand image advertising a “passing fad.” But by the late 60’s, the strategic resource called creativity was well on its way toward winning the battle of Madison Avenue, confirmation coming in 1966, when Doyle Dane won the $8.5 million Mobil Oil account from the Ted Bates agency. By the 1980’s, when I began covering the advertising industry for The New York Times, it was taken for granted that creativity was the natural ground on which the battle for advertising supremacy should be fought.

"If you look at advertising history, most of the shops that are the big guys today started up as small shops in the 40's and 50's, where the owners of the agency were also the business strategists and the copywriters," David E. R. Dangoor, then the head of marketing at Philip Morris U.S.A., told me in 1991. "That gave birth to new ideas and a lot of gutsy marketing moves."

In other words, by the 1980’s, Advertising’s Long War seemed to be over. After a half-century during which the procured-commodity suppliers were dominant, the strategic resource providers, following a two-decade battle, had won the day.

Or so we thought.

Looking Like Hucksters

In reality, the war was continuing inside client companies themselves, and for good reason: one of the largest line items on many consumer-facing companies’ P&L accounts is advertising, and for the most part that has meant media – the channel through which marketing strategy was realized.

Clients paid little notice to advertising costs as long as the economy was growing, which it did for several decades in the United States after the close of World War II. But the oil shocks and stagflation of the 1970’s gave rise to a new discipline in business, and as the 80’s rolled in, so did management consultants, procurement specialists, stringent cost controls, and continual re-engineering.

It was only a matter of time before these new facts of industrial life caught up with marketing departments -- and in 1986, they did. Bates Chairman Bob Jacoby’s $110 million windfall from the sale of his agency to the Saatchis changed client-agency relationships forever, by forcing marketers to confront the staggering profit margins their agencies were earning from their advertising spend. "We may stand today looking more like hucksters than when Frederic Wakeman wrote the book more than 25 years ago,” American Association of Advertising Agencies President Len Matthews lamented at the time.

He was right. Client companies immediately began pushing down agency compensation. They started hiring professional search consultants, whose tasks included not only help with agency selection, but compensation negotiations. Agencies recoiled – Matthews publicly called one prominent search consultant, an ex-agency executive named Alvin A. Achenbaum, a “quisling,” after Norway’s traitorous World War II leader – but to no avail. Agency margins began collapsing, from 20%+ on average to 10% and less.

The agencies had no choice but to unbundle – to separate the media-planning and -buying functions from the strategic and creative functions. Unbundling served two purposes: It enabled the holding companies, which increasingly dominated the industry, to consolidate their media functions, and gain both scale efficiencies and purchasing clout with media companies, which themselves were aggregating into global giants like Time Warner, News Corp., and Viacom. Unbundling also allowed the agency holding companies to start charging, on a menu-like basis, for the many offerings the so-called “full service agencies” had long given away for free, such as creative, research, public relations, and product development.

Unbundling, however, didn’t necessarily help the agency business. Holding company operating margins, even factoring out the effects of the recession, still hover in the 10-13% range, far below the historic norms that prompted advertising’s “megamerger” boom of the 1980’s. With the recession, the picture is far more grim. The WPP Group reported operating margins of 7.5% for the first half of 2009, down from 13% during the same period the previous year. Interpublic’s operating margins were 1.7% for first nine months of 2009, down from 5.1% in 2008.

Marketing Drives Growth

But a funny thing happened on the way to this resurgent procurement –driven view of marketing: interactivity.

I first saw the marked change in the tone and content of marketers’ interests in 2004-2005, when I was part of the team at the consulting firm Booz & Co. that helped the Association of National Advertisers grapple with the evolution of marketing capabilities and marketing organizations. The ANA’s members – Chief Marketing Officers and other senior marketing executives – felt they were drifting away from the center of influence in their companies, a feeling underscored by the shrinking tenure of CMOs. Was that true, the association wanted to know, and if so, what did marketers need to do to regain their centrality?

The first thing we discovered was that the perception was false. Overwhelmingly, across all industry segments, marketers and non-marketers alike agreed that marketing had grown strikingly in importance during the early 2000’s. The prevailing trends affecting all parts of business – growing capital and labor mobility, frictionless global communications, the increased speed of technology transfer – were hastening the perception and the reality of commoditization across all product and service categories. Chief executives needed marketing to help them overcome the commodity challenge, and add value to their companies’ goods. And some marketers were fulfilling the promise. These “super-CMO’s,” as we dubbed them, were serving as the lead growth drivers in their firms.

Unfortunately, they were still a minority. Most CMO’s served as what we called “Chief Advertising Officers.” Their expertise was in shepherding third-party agencies toward the creation of discrete sets of pre-formatted advertising products – print ads, TV commercials, press releases, and the like. It was the gap between the CEO’s desire and this reality that accounted for CMOs’ short tenure: They wanted someone who could own the company’s growth agenda, but too often they ended up with an advanced advertising manager. In other words, too many CMOs were managing commodity processing, in an environment where commodity processing could no longer assure their firms’ need to generate growth and deliver shareholder value.

As we probed further, we discovered that advanced marketers were seeing a way out of the commodity trap: The same communications technologies that were creating it.

“What’s changed is that the engagement level we can have with our consumers is just so much higher,” Jim Stengel, then the Global Marketing Officer of Procter & Gamble, told our Booz-ANA team in 2006. “We can have a two-way dialogue, a relationship. That means we will need more brand-enhancing, consumer-enhancing dialogue in more of our businesses. It’s a different skill set—with different capabilities—than we required in the past.”

John D. Hayes, the Chief Marketing Officer of the American Express Co., affirmed the shift, in words that should have put the nail in the coffin of the “procured commodity” school of advertising management. “The world is in the middle of an ongoing conversation,” Mr. Hayes said, in interviews for the book we published, CMO Thought Leaders: The Rise of the Strategic Marketer. “A marketer’s challenge and job is to enter that conversation. And when you do join in, you had better be prepared to add value. If your attitude is, ‘We’re going to pound away with this many GRPs talking about our new product,’ all you’re doing is interrupting the conversation. People don’t like that.”

This, of course, is the language of strategic resource – language that has grown louder and more insistent in the years since that first study. In 2007, the ANA and Booz joined with the IAB and the American Association of Advertising Agencies for a new study, Marketing-Media Ecosystem 2010. In it, we asked marketers what their greatest need was. Eighty-two percent gave the same answer: consumer insights, by which they meant actionable marketplace understanding with which they could grow their businesses and build new businesses. How would they gain these insights? Page after page of our study saw the same answer – in Booz’s words, they required “marketing as conversation.”

“The marketing function, equipped to broadcast brand messages to consumers, has now become
a center for dialogue, geared to gleaning what consumers want, and when and where they want it,” the Booz partner who led our research, Christopher Vollmer (pictured right), wrote in the journal strategy+business. “Advertising has evolved from an interruption—grabbing attention for a product or brand—into an experience, an application, a service that the consumer actually wants. This new marketing model doesn’t shout; it listens and learns. And relevance, interactivity, and accountability are its essential ingredients.”

This, indeed, has made for a profound gulf between marketing laggards and marketing leaders, as determined by their investments and their returns. Eight-eight percent of leaders in our study had “open channels for communicating with consumers,” while only 63% of laggards did. Another 88% of the leaders were participating in or leveraging online communities, vs. 59% of the laggards. Of the leaders, 72% had formal processes for integrating consumer intelligence into products; fewer than half the laggards did.

Marketer-Publisher Teaming

We also found a greater willingness by clients to work directly with leading publishers to realize their need for more intimate consumer relationships.

"If I were an agency, I would be really worried about being disintermediated," Becky Saeger, CMO of Charles Schwab, said at the ANA’s 2008 “Masters of Marketing” conference, reinforcing the study’s findings. "More and more the agencies are almost in the way sometimes.” Schwab, she said, had begun doing “strategic briefings for media companies so we know that they understand what we're trying to do with our brand so we get higher quality input and not have to rely on our media agency to be in the middle all the time."

Sitting on the same panel, Gary Elliott, vice president for corporate marketing at Hewlett-Packard, echoed her sentiments. “We're going to pilot a number of different relationships where we go direct with media companies,” he said.

It’s unsurprising that clients would start rebelling against their agencies’ procured-commodity approach to marketing: Many marketers, particularly packaged-goods companies, have confronted similar commoditizing pressures from their retail customers, and realized that their only way out was to become more expert at providing services to these customers.

The two-decade-long “private label revolution” has pressured brand marketers’ prices down. In the early going, they responded by offering slotting allowances – essentially, fees for shelf space – to the retailers. CPG makers then went on cost-cutting binges, in order to be able to permanently bring their pricing in line with private-label merchandise, a strategy known as “everyday low pricing,” or EDLP. But as the retail trade has grown even more concentrated and powerful, competing solely on price is a strategy that, literally, offers diminishing returns to packaged goods companies. CPG manufacturers have had to compete in other ways. They have had to learn to be more sophisticated about their trade promotions strategies, offering retailers only deals that can provide both parties an acceptable return. They have created special box sizes, customized store displays, advanced consumer research and analysis, even brands unique to individual retailers – assistance unthinkable in the era of one-size-fits-all mass manufacturing. They have, in short, added to their commodity production processes an overlay of solutions – services that help their customers create value for their customers.

No wonder these marketers expect the same solutions-focus from their agencies and media. The circle is either vicious – endless rounds of cost-cutting until everyone gets zero value and zero return – or virtuous: Continual innovation by which agencies and media help marketers shape practical or emotional utility for consumers.

Hence, the paradox we face in today’s marketing and media industries. There is not a creative agency or an interactive publisher I know that doesn’t say that among its greatest challenges is the demand from clients for marketing programs that are innovative, customized, or unique. Marketers are looking to get closer to a specific publisher’s specific audience. They want entertainment and engagement, special to them, that only this media company’s assets can provide. They desire insights about product features and benefits that only this section of that social network can offer.

So why, then, do we spend so much effort developing new platforms for blasting impressions by the billions across the entire face of a shapeless Internet? Why, 150 years after George Rowell launched the first one, do we consume ourselves with introducing new media brokerage services capable of shaving arbitraged micro-pennies from the trading of direct-response data? Why are so much energy and investment focused on the development of “digital media trading solutions,” “algorithmic audience targeting platforms,” “networks of networks,” and other mechanisms designed to improve cost efficiencies on the distribution side of spots and dots?

Even the smartest people in our industry mistake the challenge, and the opportunity. Consider this recent essay by Eric Picard, a noted advertising technology advisor to the advertising platform engineering team at Microsoft.
"I envision a world where media planners will spend the bulk of their time defining the goals of the advertiser, and translating those goals into complex instructions that can be interpreted by software," Mr. Picard writes. "The ad platforms of the future will match these instructions against available ad inventory that is enriched with targeting attributes based on user behavior and content associations -- and then optimized in an automated fashion by very smart systems."

But guess what? That is not the world CMO’s are envisioning. Listen to what Lucas Watson, Global Team Leader for Digital Business Strategy at Procter & Gamble, told attendees at the IAB MIXX Conference this past September about “what we have been learning in the interactive space.”

“As we spent all this time worrying about ad frequency and ad formats and where we’re placing, contextual targeting and behavioral targeting – it’s all important -- but we’re finding that it’s creative quality that is driving 70% of the business impact we’re seeing in our return on advertising,” Mr. Watson said. “Good ideas are driving more business than bad ideas. It’s not rocket science. But I think there was some doubt about whether this counted in the interactive space. We think it does."

Or consider what Hewlett-Packard’s Michael Mendenhall said to his fellow CMO’s at the ANA’s annual conference in October 2008. “Web 2.0, which enables multiparty, multimedia, simultaneous, digital conversations, has completely upended the traditional relationship between companies and consumers,” Mr. Mendenhall affirmed. “The power of a single individual to shape perceptions on a massive scale is a dramatic and fundamental shift. It is no longer just about where businesses put their ad spend. A comprehensive digital media strategy across all operations of a company is required. As marketers, we need to ask ourselves, ‘How can we drive efficiency and stakeholder engagement in this interactive environment…while still managing the reputational risk to our brands?’”

Don’t get me wrong. Not for a minute am I arguing that improving commodity processing isn’t vitally important to marketers, media, and agencies. Quite the opposite: If you’re going to live in WalMart’s World – and pretty soon, every industry confronts its own version of WalMart’s World – you have to become superior at efficiency. Network-like aggregating mechanisms, trading platforms, and process automation devices are both important and necessary. To support my bona fides, I point that back in April, 2000, I was the first person to raise in the pages of Advertising Age the viability of online exchanges for the trading of media space and time.

What I’m arguing is that these mechanisms address only half the challenge. As HP’s Mr. Mendenhall says, marketing’s future is about efficiency and stakeholder engagement. That means agencies and media alike must focus on the development of strategic resources that can drive growth – their customers’, and their own.

Building Brands Online

The need to bridge this terrible gap – to get Silicon Valley talking to New York and Chicago, encourage CPG companies’ Global Media Officers to speak with their Chief Marketing Officers, and perhaps spur media agencies to rebundle with creative agencies – was perhaps the most important finding in the newly-released IAB-Bain & Co. study Building Brands Online: An Interactive Advertising Action Plan.

This groundbreaking research, which involved a survey of 700 marketing executives, found clearly that brand marketers have three powerful needs; that to fulfill these needs, media companies require three sets of capabilities; and that to organize profitably to apply these capabilities, media companies must have three distinct service models.

The three marketer needs have conventional names – brand awareness, brand engagement, and transactions. But as the Bain/IAB team reviewed the survey results and the qualitative responses from marketers, these vague terms took on new meaning.

“Engagement,” we came to understand, really means the application of a distinct set of assets
and capabilities to enhance the affinity consumers feel for a company, brand, product, or service, sufficient to maintain that marketer’s premium price realization versus like competitors through time. The concept of “transactions” also took on new depth. Typically defined by direct marketers as the successful consummation of a sale at today’s offer through the current control device, transactions in the interactive space can cover anything from total number of clicks, to the data derived from clicks, to the downloading of collateral material, to the delivery of a consumer by a brand marketer to a retail partner.

With these learnings, we saw that, by applying old processes, metrics, and compensation models in this newly complex yet opportunity-rich space, media, agencies, and marketing departments had underserved the needs of the enterprise.

For example, publishers had over time increasingly conflated brand awareness advertising with transaction-focused advertising, in large part because both are reach-based functions. But by allowing marketers and agencies to pay for awareness campaigns on the basis of clickthroughs or other transaction metrics, publishers perversely found themselves giving away brand lift as a free added value on top of low-priced direct-response campaigns. Moreover, because brand awareness builds through time, by demanding clickthroughs as a metric for such campaigns, agencies were developing media plans aimed at the wrong audiences, in the wrong media contexts.

Similarly, while transactions can be employed to understand engagement, they are not synonymous with it. To take one simple example, reading about multiple friends’ brand preferences on a social network can create powerful affinities between a consumer and those brands – but they cannot be measured by transactions (because there aren’t any) and they cannot be charted on a conventional media plan.

The mismatch between metrics and brand marketers’ objectives was among the strongest conclusions of the study. Clients, Bain found, wanted classic measurements designed to show growth in consumers’ knowledge of and feelings for the brand, including awareness, purchase intent, and likelihood to recommend. But media and agencies, misunderstanding what marketers meant by “accountability,” kept trying to push digital metrics, especially those drawn from the arsenal of direct response, such as clickthroughs, unique visitors, viewthroughs, and time spent on page.

"The clear message coming out of interviews [with marketers] was 'we don't have any of the right metrics,'" John Frelinghuysen, Media Practice Leader at Bain and the lead partner on our study, told Advertising Age. "And the sellers are saying 'we have loads of metrics.' The people who are making these decisions of how much to allocate to online and how to think about that in relation to TV buys are people who've grown up with TV. ... They think online has digital-specialty metrics and they want metrics that speak a common language with the offline world."

Bain recommends that publishers develop “triple play” service offerings to fulfill marketers’ three needs, and gain expertise in both lower-cost, more automated delivery of reach advertising, and in the high-value services (customized creative, category-specific marketing strategy, consumer analysis, cross-platform marketing, and customized targeting among them) that will enhance engagement – and command high prices from clients.

“Agencies also have to think about how to take advantage of the medium,” my colleague Sherrill Mane, IAB’s Senior Vice President for Industry Services, told Ad Age. “If an agency isn’t able to produce the creative that captivates and does more for brands, then media partners will.”

Cross-Platform Expertise

And they are. The IAB-Bain study highlighted the cross-platform expertise developed by ESPN; the marketing services capabilities brought to the market through six agency acquisitions by Meredith; the customized creativity offered by The New York Times, MTV Networks, Yahoo, and the Wall Street Journal; the unique creative partnerships forged by Sprint and Microsoft; the tiered price segments offered by Martha Stewart Living Omnimedia, Forbes, and Time Inc.; and the database marketing and lead generation services built by IDG – among the many “triple play” offerings developed by publishers to realize their obligation to marketers. These and other case studies and best practices form the heart of the IAB’s soon-to-launch “Shifting Share Campaign” to drive more brand marketer attention and spend to the growth opportunities offered by digital media. (If you’re a brand marketer and want to learn more, please email me!)

Creating these high-value customer services represents a departure for publishers. For generations, great media companies have certainly focused on service. They filled informational needs (“all the news that’s fit to print”), practical needs (“access to tools”), emotional needs (“fun, fearless, female”), or social needs (“must-see TV!”). But whatever its mission, the service was specifically consumer-directed.

On the advertising side of their businesses, though, media companies historically offered up variations of processed commodities. They sold time or space, in mass bundles. They differentiated those bundles by the most elemental of demographics: A male or female skew, 18-49 age group, A and B counties. They’d compete on their audiences’ propensity to buy certain categories of goods. But the mechanics of selling and the product they sold otherwise differed little from place to place – hence the commodity characterization of advertising sales as offering “spots and dots.”

In other words, for the most part media companies considered their customer value proposition to be synonymous with their consumer value proposition: They created fabulous, alluring, differentiated content that successfully and repeatedly assembled an audience – and then they allowed third parties called agencies to place ads (with few variations in length or dimension) in front of them. They took no responsibility for those ads’ strategic underpinning, creation or performance.

Those days are over. IDG CEO Bob Carrigan, a one-time magazine-centered publisher whose company today has a menu of some 20 services, including but certainly not limited to advertising, that it provides to clients, even put a headline over the strategic shift taking place at media companies. It was the title of his keynote presentation at the IAB Annual Leadership Meeting last year in Orlando, Florida: “If You Just Publish, You’ll Perish.”

Agencies Must Reinvent

Agencies, too, must reinvent their business. The unbundling of the procurement function from the strategic function clearly ill-served their clients – as the clients themselves are saying ever more loudly. Straight rebundling may not be the answer – but neither is a tighter and narrower focus on the cost-squeezing side of their own business. After all, the same technologies that enable agencies to develop their own networks and trading platforms can be even more readily insourced by large consumer-product makers and service providers, which have a 30-year head-start integrating sophisticated IT solutions into their catalog of capabilities.

The great creative agencies that surfaced during the 1980’s and 1990’s seem to understand the power of service best. I’ve been struck by the degree to which agencies like Goodby Silverstein, Hill Holliday, the Martin Agency, McKinney, Crispin Porter Bogusky, along with agencies cut from the same creative cloth, such as R/GA, Droga5, Barbarian Group, and Campfire, seem to be dominating both awards shows and client interest. Having shaken off their shellshock from the first wave of digital disruption, they are strutting their abilities in best-of-breed creative, and in some cases developing their own version of “triple play” services, gaining expertise especially in transaction facilitation. This isn’t really surprising: These agencies’ greatest proficiency is in ideas – and for marketers, that remains the most important service of all.

And to be fair, there are those on the agency side that are talking the language of service outside of the creative arena. WPP’s consolidation of more than 20 individual companies into the Kantar Group, which the holding company describes as “one of the world's largest insight, information and consultancy networks,” is certainly an example.

Even a few that are launching new commodity-procurement operations are careful to note that they are not meant to subsume their devotion to service. For example, Quentin George, Chief Digital Officer of Mediabrands, the media-buying unit of the Interpublic Group of Companies, and the acting CEO of its recently launched online ad network Cadreon, is adamant that arbitrage is not part of its model – that indeed, risk arbitrage is antithetical to the agency’s mandate, which is to render service to clients.

“We think there's a lot of good margin to make on the services side,” Mr. George (pictured left) said recently. “Certain clients have become a lot more willing to talk about things like licensing fees and data fees. And we would much rather make money on those elements, than pure arbitrage where we put [agency] capital at risk – buying inventory and then selling it off over time."

Calling up the decades-old argument that agencies sitting on both the buy and sell sides of media risk irreconcilable tensions with their clients, Mr. George added, “There is the potential for conflict if you put agency capital at risk to acquire inventory, and then sit on that, and then dish it out to clients over time.”

"The number one job we have,” he said, “is to really apply our client's money where it creates the biggest benefit. And in return, you can extract money for services.”

Real Business Opportunity

Mr. George has that part exactly right – as did ex-copywriter James Rorty 80 years ago, and as do the publishers that are adding value-additive services to their mix of offerings. While commodity procurement will forever remain a vital part of the marketing industry, the real business opportunities reside in strategic resourcing.

Because if business history is any guide, the procured-commodity experts will get it right. The "digital media trading solutions, "algorithmic audience targeting platforms," "networks of networks," and "demand-side exchanges" will make a difference.

But when technology succeeds in driving the cost of reaching the perfect audience down to zero, what are you left with?

Everyone with the same low costs, the same perfect efficiency, for doing the same exact thing ... and nothing unique to say or do or offer to consumers.

And that's when the real competition begins.