When trying to predict the future of advertising, one is reminded of several famous predictions in the technology industry.
“640K of memory should be good for everybody”, Bill Gates (1981)
“I think that there is a world market for 5 computers”, Thomas Watson, Chairman IBM (1943)
“There is no reason why anyone would want a computer in their home”, Ken Olson, founder of DEC
With that caveat, let me lay out a few trends that I think will shape the future of advertising.
In my opinion, there are 6 key consumer and technology trends that will impact the future of advertising.
1. Device proliferation. We are all experiencing this in our daily lives- we are surrounded by PCs, cell phones, multiple screens, iPods, and gaming consoles. The culture of multi-tasking that is associated with this life-style presents a significant challenge for advertisers seeking to establish an emotional connection with their customers, especially when using traditional media and ad formats (such as 30 second TV spots)
2. Social Media. Virtual worlds such as Second Life, UGC and multi-player gaming communities such as X-Box Live are a reality and advertisers are experimenting with buying islands in Second Life, bill board within video games and over-lay ads on YouTube. What the experiments are encouraging, the combination of media fragmentation, rapidly evolving popularity of UGC sites, and the nature of ad formats that these media types support makes it challenging to get scale. Advertisers are yet to find substitutes for the 30 second spot on Desperate Housewives or Friends
3. Interactive Video. PC based internet video consumption has exploded in the last 18 months with YouTube and the availability of premium content such as grey’s Anatomy on abc.com and nbc.com. This trend is likely to accelerate with:
a. The explosion of sites distributing premium content via the internet. Offerings range from services like Joost TV that will offer TV experiences on the internet to services streaming TV content on demand such as hulu.com (a JV between Fox Interactive and NBC that will distribute their TV programming via aol.com, msn.com and yahoo.com).
b. The proliferation of devices that connect TVs to the internet (e.g. Windows Media Center Extenders, Vudu, Kylin) and the recent launch of TVs that can directly be plugged into the internet by both Sony and HP.
This is both a challenge and an opportunity for advertisers. It challenges the traditional “interrupt and repeat” model of TV advertising as demonstrated by the fact that 50% of all TiVo users fast forward all ads. At the same time, the interactivity and targeting available with internet based video can enable advertisers to deliver far more engaging and relevant advertising.
4. Mobile. In many ways, 2007 the year that mobile advertising is going mainstream, as demonstrated by the flurry of acquisitions- Microsoft acquired Screen Tonic while Nokia acquired Enpocket. There are several drivers of this trend.
a. The increasing sophistication of smart phones (e.g. the iPhone that can use a regular PC browser) and the launch of palm sized ultra-mobile PCs
b. The unique ability of mobile phones to provide location specific contextual advertising, such as coupons for lunch at McDonalds as you walk by a store
The open question is whether regulators will force carriers to open their network architectures (unlike the internet, carriers control what devices and applications can be used in mobile networks) and thereby enable and explosion in ad funded content, software, services and devices.
5. User-in Control. New technologies such as DVRs and ad blocking software have enabled users to take control of what advertising they are exposed to. In addition, consumer attitudes have evolved- consumers are less trusting of marketing messages unless they are delivered by credible members of communities that they belong to. This poses a unique challenge to marketers – free content based business models (such as network TV) depend on the consumers’ willingness to implicitly pay via the time they spend watching ads. Consumers and advertisers need to develop a new contract – one where consumers get relevant, informative, and ideally entertaining advertising in a format that they can control while advertisers can get the consumer engagement required to justify their ad spend. Fortunately, there is evidence that such a contract is acceptable to consumers: 74% of consumers say that they “like advertising that tells them about new products that are of interest to them“, 66% “agree that “ads made for people my age can be really entertaining” and 53% say that “I think some ads are better than the programs on TV.”
6. Auction market places. Automated auctions have improved the efficiency of many market places. Google’s success is as much about the success of its auction based market place as it is about it’s the relevance that search based advertising delivers. Microsoft has had similar, though less high profile, success with its display auctions – MSDR and DrivePM (acquired as part of aQuantive). Over the next 3 years, I expect auction based sales models to become pervasive across media types, including print, TV and radio, and for guaranteed placements vs. just remnant inventory.
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These consumer and technology trends are impacting advertiser behavior and expectations of their agencies. As a result, there are 4 key additional trends in advertising is likely to evolve in the coming 3-5 years.
1. Democratization of Advertising. Just as PCs democratized computing, technology is democratizing advertising. AdWords and AdCenter allow small local businesses to compete national chains. Spot Runner is doing the same for TV advertising – one can actually set up a $ 15,000 local TV campaign by spending only $ 500 on creative execution and an hour or so on media planning.
2. ROI/Marketing Accountability. Ogilvy famously said, “50% of all my advertising is wasted… I just don’t know which 50%”. The advent of on-line world changed that paradigm, and now marketers are asking for similar levels of accountability from all of their advertising spend. Traditional media owners need to improve the accuracy of even the most basic data that they provide today – TV stations are being asked to set ad rates based on ad viewership vs. programming viewership while radio stations are under pressure to shift from diary based tracking to electronic people meters. Ads themselves need to be tested more rigorously for effectiveness – both in terms of relevance and viewer engagement. More broadly, advertisers are demanding better tracking of the connection between the various types of consumer communication (across the funnel) and consumer action. In fact, research shows that search advertising is probably over-rewarded as current measurement systems do not take into account the impact of prior communication (whether its display or traditional media). Addressing these issues requires new marketing models, metrics and measurement systems.
3. Increased Importance of Media Planning. The growing importance of digital media, media fragmentation, and the explosion of ad formats collectively has increased both the importance and the complexity of media planning. 10 years ago, advertisers could reach their target audience of young urban professionals by advertising in Friends. Today, achieving a similar reach will require advertising across TV, on-line display and search with several campaigns using innovative ad formats such as in-game bill boards.
4. Integrated Marketing. Traditional marketing and agency models are siloed in their approach. Brand teams within the same company often do not talk to each other. Within an agency, the direct response and the brand advertising teams serving the same client often don’t work together. Furthermore, advertisers lack metrics and tools that can enable cross media planning and optimization. As a result marketing campaigns that effectively integrate multiple media
types are currently the exception vs. the rule. Over the next 3 years, I expect this to change significantly. All the other trends discussed above will force advertisers to think holistically across the bands that market, optimize across media types and to develop cross media campaigns as the norm (vs. the exception).
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Advertising is a large and growing industry that provides a valuable service to both consumers and businesses. Imagine a world without advertising! How dull and plain would that be? How would businesses communicate with consumers, and inform them about their innovations? Advertising is here to stay!. At the same time, advertising does need to innovate to address rapidly evolving technology and consumer trends. Just like P&G invented “soap operas” to take advantage of the new medium of that time- TV, so will today’s advertisers need to innovate to take advantage of these trends.
If you are interested in more details, feel free to download a presentation that I recently made in Washington DC at a TiE event.