Monthly Archives: March 2013

The accelerating crisis of advertising visual inventory

Five years ago in Businessweek I wrote the real threat to Google wouldn’t be Apple or Facebook, but instead the migration of consumers to mobile devices that have less “visual inventory” — physical screen space — for advertising. This threat continues, except now, newer players in mobile communications are squeezing Google, Facebook, and others by reducing the space for ads to nearly zero.

Evelyn M. Rusli reported this week in The Wall Street Journal that mobile apps such as WhatsApp, Line, WeChat and Kakao Talk are rapidly gaining on older social networks such as Facebook and Twitter due to their immediacy, simplicity, and tight integration with smartphones. In Brazil 80% of iPhone owners use WhatsApp, and in Germany the number is 87%. Facebook is trying to defend itself with its Messenger, but so far only 13% of U.S. iPhone owners use it monthly.

Such messaging apps undercut Facebook’s ad revenue — and carriers may get killed, since this web-based messaging leaps over AT&T and Verizon’s ability to extract high margins from normal phone text messages. The WSJ estimated that consumers pay about 20 cents to send a single text via carriers, but the actual cost to the carrier for that transmission is a fraction of a penny.

This pattern is part of an ongoing devolution of the visual inventory required for effective advertising interception. Think back to the newspapers of the early 1990s, filled with vast broadsheets of sellable advertising space. Every few years, another format rose that was more efficient in driving advertising response, but at the same time destroyed the prior visual inventory system:

  • Newspapers (Display ads and classifieds)
  • PC browser-based web (Google search + Craigslist + Facebook PPC ads)
  • Tablets (smaller screens)
  • Smartphones (apps with almost no ad inventory)
  • Apple iWatch (coming soon — with almost no ad inventory)
  • Google Glass (coming soon — with I suspect zero ad inventory)

At the SXSW tech conference this month, I ran into a guy wearing Google Glass prototype goggles in the men’s room. Two thoughts struck me: I hoped he wasn’t filming at the urinals, and I doubted a search ad was floating anywhere in his field of vision.

Television feels the same pain

Today, television advertising is still alive and well, with $70 billion spent annually on television ads in the U.S. (and another $74 billion paid in cable subscription fees). But TV is facing a similar squeeze in inventory as users move to YouTube and Hulu, where there is less patience for 40% of each hour to be used as promotional interruptions. Hulu launched successfully in part by deliberately limiting the commercial intrusions per hour. In each of its reports, Nielsen notes non-TV consumption of video is growing compared to traditional TV use. ComScore hits the threat best, showing that mobile device usage now accounts for 37% of all digital time and 10% of all daily media time. “If businesses don’t adapt,” comScore wrote in a recent breathless manifesto, “they may not live to see tomorrow.”

All of this is not to say that advertising is going away. U.S. households now have more than three TV screens on average; consumers still spend more than 4 1/2 hours each day watching giant video; advertising will always be required to support the “free” content consumers are unwilling to pay for. Consumers for instance could remove all Facebook ads if they were willing to pay 1.6 cents a day for the service (1 billion users * 1.6 cents daily would equal Facebook’s current $6 billion in ad revenue). But they won’t.

Advertising is being reset in smaller boxes. The challenge for marketers is to find out how to make advertising work in newer, tighter media formats with reduced visual inventory.

Graphic credit: ComScore Brave New Digital World

On the evolutionary aversion to ‘native ads’

Native advertising is the latest buzzword circulating among agencies and publishers. There’s nothing new here; “native” means crafting a marketing message in a format that appears to fit within the organic content, a type of advertorial that has been around for more than 50 years. Early episodes of The Flintstones cartoon, for instance, segued to commercial breaks with Fred and Wilma smoking Winston cigarettes. Advertorial is found in newspapers, where advertisers write “articles” that mimic the look and feel of the print pieces; in movies, product placement sticks a clip about teenage gunners finding food in a Subway restaurant during the middle of a Red Dawn chase scene.

But native is now hot in digital, because web publishers are losing audiences to mobile and ad dollars to DSPs, and they love the new revenue that embedding marketing messages inside their content may provide. Is this bad?

Hell, yes. Advertorial / sponsored content / “native advertising” has always been controversial, largely because its sole purpose is to disguise its source and convince consumers it is an organic part of the entertainment or news they wish to consume. While researching an upcoming Digiday column on this, I surveyed some of our agency’s media buyers for their opinion, and the consensus was, yuck. “Slimy” and “tricky” popped up as descriptors. Such ethical subjectivity may seem strange sourced from a group of people bent on influencing others … until you realize what “native” really does.

A large part of how human beings judge value is by relying on the opinions of others. This is no theory, but fact: There is too much data in the world for any of us to consume, so we rely on frameworks from other minds to select the information that is most meaningful. This is why Libertarians in love with Ayn Rand will never agree with liberals who listen to MSNBC; at some point in each of our early teen years, we lock in to a framework that helps us understand the world. We embrace a filter for the data noise, and in exchange become a bit rigid in our worldviews.

Frameworks come from people we trust, and we rely on these sources of information to quickly judge each information’s value. When a trusted advisor tells you to invest in Google, you do, because you believe she knows what she’s talking about. When your spouse says she is upset about a work incident, you are likely to believe her, because you trust her point of view is more valid than that of her boss. If Brad Pitt or Angelina Jolie showed up at your next party and told a joke, you’d likely laugh more than if your cousin Vinnie said the same thing. Sources matter. The reason businesspeople fly on airplanes to meetings, rather than sending simple emails, is they hope their presence as a source will provide more buy-in of their information.

We follow people, not data. We look for origination points, not at the flowing stream.

Why is this so? Believing in sources more than content is likely a survival instinct; our cavemen ancestors, when confronted by uncle Oog screaming a tiger is coming, relied on that source to run quickly without over-thinking it. Those who did, survived, and our source-relying genes remain with us today.

Advertorial and native blur the source of information, and that cognitive dissonance creates trouble for the receiver that bleeds upstream. If Oog was pulling your great-great-great-great-great grandfather’s leg about the tiger, he likely received a beating. But if a social media guru says he loves the latest Blackberry smartphone (client disclosure!), what do you make of that? Is it true? Paid? Is your source valid? You are confused in parsing the data, and that source becomes devalued.

Advertising receives knocks because it is manipulative, but its saving grace is all ads are usually marked as such. When a commercial break comes on TV, you know it’s a bunch of ads in a pod, all trying to shift your opinion, and you can gauge their value as such. But if Tom Hanks hosts the Academy Awards next year and suddenly drinks a Pepsi, you wonder — did Pepsi pay for that inclusion, and if so, does your love of Mr. Hanks mean you can no longer trust his opinion?

IZEA, Facebook, Twitter, The Los Angeles Times, The Atlantic, Quartz, The Huffington Post, are all trying new ways to blur the sources of ads in exchange for more marketing revenue. The pitch is “native advertising” is less disruptive and more valuable because it looks like the other content in the stream. Publishers are hungry for new revenue, as DSPs steal away digital audiences and magazines see declining circulations.

The trouble with native advertising is its pollution is, like all negative externalities, invisible in the beginning, but accumulates until the entire commons is spoiled. Digital advertising, in particular, risks becoming the next telemarketing — a channel that once worked until too many piled in too slickly, and then audiences rebelled by shutting the entire thing down. At least you know where a banner ad is coming from. With a sponsored story, it’s very hard to tell whether the source is giving you the truth. And when you stop believing in a source, your instinct is to listen to Oog and run away.

Image: Bérenger ZYLA

When to pick engagement vs. broadcast

Here’s a grid that explains when you should use social media, or when an ad on TV will suffice just fine. It was born out of my frustration a year ago with some communication gurus saying “everyone should engage with their customers,” when that tactic, like a hammer for building a house, isn’t always the right tool.

First, look at the arrows on the outside of the box. Information only has two dynamics: the way it flows, either away from you or toward you, and the scale of how many people are touched by the message, a few vs. the many. Once we draw the box showing flow and scale, then inside it we can put the four communication tactics that fit in each corner:

  • Engagement: Inbound messaging that flows back and forth between a few. Usually human.
  • Personalization: An outbound message pushed to a few. Often automated.
  • Research: Inbound information pulled from many, such as focus groups or polls.
  • Broadcast: An outbound message designed to reach many at scale.
Marketers have become over-enamored with “engagement” when really it is 1 of 4 completely valid tools. Back in April 2012, I noted the next decision is when to use the appropriate information tool.
Engagement: While “engagement” may seem the most human communication approach, it really is best for organizations that have customers or stakeholders with greatly differing needs and values (this was a concept pioneered by Don Peppers back in 1993’s “The One to One Future”). In other words, if you really need something unique, I should engage with you directly; however, there is a cost for me to do so, so I should pick and choose the people to engage with who (coldly speaking) make it worth my while. For instance, a financial advisor with 1,000 clients likely should treat the handful with millions of dollars in their accounts very differently than all the rest, so an engagement strategy in that business would make sense. Chris Brogan is a heckuva nice guy, but he can’t have one-on-one conversations with each of the 236,000 people who follow him on Twitter. Engagement only makes sense if individual needs are unique and if some in the audience have higher value to us than others.
Personalization: If your customers have unique needs, but relatively similar value to you, “personalization” is a more logical business strategy. uses automated personalization because the value skew of its customers is not high; one might order $20 a year and another $200, but that’s about as far as their values go. So Amazon needs to personalize for millions of customers with different needs (say, book interests) at a low cost. Human engagement would be too wasteful, but computer algorithms work just fine.
Research: Research works well for the obvious pulling of information from masses, or a statistical sample thereof.
Broadcast: Broadcast tactics — not defined as TV and radio, but in this case really all of mass media — get a bad rap today. But if all your customers have very similar value to you, and want about the same thing, go ahead and fire up the TV commercials. If a consumer spends a few dollars a week on Pepsi, and just wants a tasty drink, she doesn’t need an intimate relationship with the brand. She just needs frequent mass media to remind her to buy it. Marketers still spend billions on mass media advertising because it works at scale, for most products where customers all want about the same thing.
Four information dynamics. All useful. All to be deployed based on whether your customers are really unique in their needs, and if your customers have a wide range or not in value to you.
Not all communication strategies are created equal, but they all can play an important role.