Sunday, September 23, 2007


The Interactive Advertising Bureau’s annual MIXX Conference & Expo – dedicated, with a little linguistic handiwork to Marketing Innovation and eXXcellence -- is a two-day cavalcade of 100 digital stars. But it has a single theme, which I’d like briefly to explain and explore:

In an always-on, digital, interactive communications environment, marketing value – now and forever – derives from the “mixx” of strategy plus channel plus content. And that, in turn, requires new forms of collaboration among marketers, agencies, and media companies.

Let’s parse that statement, starting with the concept of marketing value. It’s a commonplace that for much of its first century, advertising’s worth was essentially unknowable. “Does advertising increase demand for a given firm’s products?” asked Harvard Business School Professor Neil Borden in his classic 1942 text, The Economic Effects of Advertising. “Indeterminate,” he concluded. Does it preclude price competition? “In no case,” he wrote. So for all its supportive research, advertising in the 20th century was largely a “faith-based initiative,” as I and Booz Allen Hamilton consultants Chris Vollmer and John Frelinghuysen wrote a few years back:

…With ad agencies and clients alike believing it worked best when it raised awareness of brands and goods across a large swath of a target population, with success calculated using various survey-based input measures, such as page impressions; cost-per-thousand viewers or readers; and gross ratings points (GRPs), an indicator of audience size. Volume was the highest value. Rosser Reeves, head of the Ted Bates ad agency, voiced the prevailing view this way in 1960: “If 90 percent [of the audience] do not remember it, the story is not worn out.”

This center could not hold, for many reasons. As the U.S. economy matured, then fell into repeated rounds of recession and recovery, corporate owners – which came to include most of us, with our 401k’s and IRA’s – demanded greater and greater returns on invested capital; Finance Departments accordingly marched through corporate units demanding accurate calculations of return on investment. Real estate, sourcing, logistics, and human capital fell under scrutiny. It was only a matter of time before marketing expenditures were held to the same standards as all the other functions.

As this was occurring, the first round of advertising agency megamergers started taking place, exposing for the first time the enormous profit margins agencies earned from their clients’ ignorance. When in 1986 the U.K.’s Saatchi brothers bought The Ted Bates Agency – fittingly, the agency built on Rosser Reeves’s theories of repetition – Bates’s chairman and CEO, Bob Jacoby, personally pocketed $111 million. The windfall clearly exposed the entire agency business. "We may stand today looking more like hucksters than when Frederick Wakeman wrote the book more than 25 years ago," lamented the president of the American Association of Advertising Agencies, Leonard Matthews.

Into this rising demand for ROI and accountability rode the Internet, with its promise to banish advertising unknowability and waste. “The Net is accountable,” I wrote in Wired in 1999. “It is knowable. It is the highway leading marketers to their Holy Grail: single-sourcing technology that can definitively tie the information consumers perceive to the purchases they make…The new media technologies, by drastically reducing production and distribution costs and making possible almost continual and instantaneous refinements in message, promise to increase the efficiency of accountable advertising so that its widespread adoption, not as an ancillary medium but as the primary communications choice, becomes inescapable.”

Quest for Solutions

But even this rosy view of advertising’s accountable future missed what was really happening among consumer and product marketers: They were becoming less and less interested in buying marketing communications products, which increasingly they perceived as a commodity. Instead, they wanted their suppliers, agencies and media companies alike, to bring them solutions.

A solution, in the words of two other former Booz Allen colleagues, Chuck Lucier and Jan Dyer, is when “a supplier takes responsibility for value-added integration, using its superior knowledge to integrate and sell an interdependent system of products and services.” Needless to say, the primary problem marketers in a mature economy like the United States want to solve is how to grow. Marketing teams, in turn, want their suppliers to help them climb the ladder to growth, by bringing them consumer insights, establishing and maintaining dialogues with consumers, engaging the audience with unique content relevant to their needs and desires, and by reaching them at exactly the right moment with the right message.

This quest for integrated solutions – and the call for help in finding them – sounds through the recent book CMO Thought Leaders: The Rise of the Strategic Marketer, published by Booz Allen and the Association of National Advertisers. “What’s changed,” Procter & Gamble CMO Jim Stengel told me in an interview for the book, “is that the engagement level we can have with our consumers is just so much higher. 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.”

American Express Co. CMO John D. Hayes – our keynote speaker on the opening morning of this year’s IAB MIXX Conference – put the distinction between commodity advertising and solutions-based marketing even more starkly. “The world is in the middle of an ongoing conversation,” Mr. Hayes told us. “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.”

Solutions are, first and foremost, a service – and a very complex service at that. They require a sophisticated knowledge of the customer’s business, deep analytic skills, and the flexibility and willingness to combine, apply, even customize, varying sets of assets and capabilities on behalf of the customer’s needs. This is a far cry from what advertising agencies, even in their heyday during the first Creative Revolution, saw as their mandate. They wanted to be known for their creativity, and creativity was defined narrowly – as the manufacturing of a pre-formatted marketing-communications product (notably a 30-second television ad and the magazine page) known for its attention-getting cleverness.

Jim Durfee, a co-founder of the Carl Ally Agency, once explained the distinction to me. "A product," the courtly Mr. Durfee said, "is something that is molded, produced, thought out and set out before the person: 'We have made this for you, we think this will help.' A service is hat-in-hand and through the side door. It was a completely different attitude toward what an agency was and what an agency made.”

Commoditization vs. Integration

Hence the second part of our MIXX Conference’s theme: that marketing value derives from the “mixx” of strategy plus channel plus content.

However clever, any product as narrowly defined by its formats and the sameness of its content as was conventional advertising is subject to commoditization. And that is what has happened to advertising. The routines – of marketers providing briefs to agencies, which rendered those briefs in a set of familiar formats, distributed over seven “measured media” with standardized content forms – grew tired. The industry even accepted its exhaustion. Its language has long been the language of commoditization: Agencies and media for decades have spoken of tonnage – of, as Amex’s Mr. Hayes put it so disparagingly, pounding away with GRP’s. Even the brass ring reached for by so many top creatives – success in “cutting through the clutter” – accepts commoditization as the environment in which it exists.

By contrast, the notable efforts in interactive advertising have been sui generis, unique applications of an idea to a channel, realized through singular content. Whether it’s the user-generated Super Bowl campaign for Dorito’s, the "Obama girl” guerrilla video for the Democratic presidential candidate, or the even more aggressively political “Campaign for Real Beauty” by Ogilvy & Mather and Edelman Worldwide for Dove soap, the best interactive advertising brings a strategy to life in a way that cannot readily be replicated.

Commodity or tonnage advertising will continue to exist. It will remain an important weapon in the arsenal of marketers and agencies, if for no other reason that regularized formats are an efficient means for communicating to a disinterested or moderately interested audience that might be lured to a brand, product or service. Its efficiency will only increase as behavioral targeting in interactive media succeeds in weeding out the disinterested and improving accountable returns for such advertising.

Even more efficiency will be brought to commodity advertising through process automation – and the Internet is a giant process-automation machine for advertising. Indeed, much of the recent wave of consolidation in interactive media and advertising – the acquisitions of 24/7 Realmedia by the WPP Group, Doubleclick by Google, AdECN and Aquantive by Microsoft, Tacoda by AOL, and Right Media by Yahoo – can be looked at as an effort to bring more process-automation efficiencies to major media companies.

On the surface, these look like (and are) very different companies – advertising pricing exchanges, ad networks, third-part ad-serving companies – but they all share one basic characteristic: They mechanize parts of advertising buy-sell processes, notably in planning, pricing, and placing, that previously were handled by humans. And they scale those processes to heretofore unthinkable dimensions. (Our second panel on the first day of MIXX, featuring the chiefs of 24/7 Realmedia, Doubleclick, Atlas, and Right Media, will explore some of the implications of consolidation and process automation in advertising.)

But, while machines may automate routine tasks (however complicated they may be), they can never automate the core components of the solutions clients really want. They cannot tell a CEO or CMO how to grow her business. Although they can aid, they cannot fully mechanize brilliance, intuition, engagement, insight, and joy. As another former colleague, George Johnson, wrote today in The New York Times: “What is spreading through the Web is not exactly artificial intelligence. For all the research that has gone into cognitive and computer science, the brain’s most formidable algorithms… have eluded simulation. The alternative has been to incorporate people, with their special skills, as components of the Net.”

The New Strategy

This is the path forward for marketers, media, and agencies alike, and it brings us to the third element of our MIXX Conference theme: That creating marketing value requires new forms of collaboration among marketers, agencies, and media companies. At the IAB, we call this "the new strategy." It will be the subject of the first panel on MIXX's opening day, featuring top agency executives Carla Hendra, Rishad Tobaccowalla, and David Verklin.

The importance of collaboration has become a commonplace of contemporary economics. It’s even deemed critical to learn to partner with competitors, a task known as “coopetition.” And here again, the Internet is a large part of the impetus. When information – about the availability of parts, say, or their quality, or their fair price -- was hard to come by, firms had an impetus to vertically integrate. Owning knowledge would lower transaction costs, keeping the firm competitive. This theory of vertical integration contributed to the Nobel Prize in economics won by Ronald H. Coase in 1991.

The Internet has made information of all sorts more freely available than ever, with dramatic effect on firms and entire industries. Consider the impact, as described by Rhonda Germany, now the vice president for strategy and business development at Honeywell, and Raman Muralidharan, a managing director of HSBC, in the management journal strategy+business:

The result is industry value chains that are undergoing almost continuous evolution. The morphing value chain — you might call its new form a value web, an extended enterprise, or (our favorite) a value constellation — challenges firms that thrived with a [vertically] integrated approach. The best value-capture mechanisms may now lie outside the individual firm's boundaries…The firm is shifting from a self-contained value-creation and -capture apparatus into one part of an interdependent community whose members continually negotiate responsibility for value creation and the right to value capture.

Just as the marketing and advertising disciplines could not remain free from the spiral of commoditization, they cannot – and should not – remain aloof from the value of collaboration. The capabilities and skills of marketers, media, and agencies – their differentiated knowledge and skills – must be brought together to fashion the solutions that clients desire.

Keith Pardy, senior vice president of strategic marketing at Nokia Corp., put it this way in the CMO Thought Leaders book. “The ones that learn to collaborate with all the ecosystem partners,” he said, speaking specifically of ad agencies, “are the ones that will survive.”

At IAB’s MIXX Conference on Tuesday, we’ll be showcasing one such ecosystem collaboration: the partnership between Microsoft, the agency Crispin, Porter + Bogusky, and Burger King that created a unique Xbox game for the restaurant company – an effort that won the Titanium Grand Prix at the Cannes Advertising Festival this year.

One such collaboration does not an industry make. At the Interactive Advertising Bureau, we are dedicated ourselves to educating the entire value chain of this new set of realities. Our Leadership Forum: Agency Summit on November 12 in New York will feature even more collaborative case studies by agencies, publishers, and marketers. But we invite everyone in the industry to turn this into a crusade.

I’ll repeat the theme of MIXX: In an always-on, digital, interactive communications environment, marketing value – now and forever – derives from the “mix” of strategy plus channel plus content. And that, in turn, requires new forms of collaboration among marketers, agencies, and media companies.

Do you have examples? If so, please post them. Counter-arguments? We’d love to hear them. MIXX it up -- “clog” with us, and change the world of media and marketing forever.

1 comment:

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