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2005 puts us at the mid-point of the first decade of the new millennium. What will things look like at the end of the 1st decade of the new millennium in the world of advertising? I thought I'd project where the ad industry is headed and what 2010 (or sooner) might look like. This two-part article will take those discussions a few steps further. First, we'll look at a scenario that is likely to be common by 2010 when the heretofore separate worlds of TV advertising, search marketing, behavioral targeting and inventory yield management blend together. If you buy some of this scenario, it's interesting to look at the implications for ad agencies. In part two, I'll speculate on the likelihood of Google being the biggest "ad agency" in world. If you look through the prism I lay out, it will cause you to think differently about where the industry is headed whether or not you agree with some of the specifics.
Search marketing, Behavioral Targeting and Yield Management's alchemizing effect on TV advertising
The accountability and efficiency of search marketing, behavioral targeting and publisher inventory yield management can look pretty compelling to a media planner compared to the relative lack of trackability of a TV spot today. What happens when you combine the best of these worlds? Let's look at a scenario that might take place when these worlds are combined.
It may easy to write this off as the ramblings of a guy who
has spent too much time in the technology industry but before you
do that, consider the following:
? All major search engines keep a search history indicating your interests, needs, likes, etc.
? Forrester projects that over half of TV households with have a DVR device by 2009.
? Today, most DVRs keep track of what we could be considered a "search history" of everything that your household has watched and what you plan to record in the future.
? With your implicit approval, that "search history" of your TV behavior could be combined with your online search and surfing behavior which would create a profile that would be quite precise regarding your preferences and interests. Whether one company delivers all of this technology (e.g., Microsoft or AOL) or a deal is done between DVR suppliers and search engines, this can easily be accomplished.
? Most people's broadband Internet access is provided by cable companies today. Setting a cookie applicable to both the TV and internet access is relatively trivial.
? Tacoda, a leading behavioral targeting company, has over 80% of the North American Internet audience in their network. They have a wide variety of non-personal demographic information about their users.
So let's fast forward five years and look at a scenario with a couple in their late 30's we'll call Mike and Jill. Periodically, they talk about the need for a vacation but have had a hard time agreeing on a location. Jill's idea of a great getaway is a "spa weekend" with mud baths, cucumber bodywraps, aroma therapy and countless other "treatments" that sound like some form of torture to Mike. Meanwhile, what Mike would really like to do is make a trip to a Final Four as his alma mater is in the Top 10 and he's sure they are going to make it a long ways in the "Big Dance". Whenever he talks with his buddies about the "Big Dance", Jill is confused Mike has never liked to dance.
One thing they can agree on is their enjoyment of watching Alias together although they are watching Jennifer Garner for different reasons. The rest of Mike's TV viewing largely consists of watching ESPN, Fox Sports and ESPN2 so he can be smarter than his buddies when it comes to filling out his bracket. Meanwhile, Jill loves watching the Travel Channel and shows on other networks about "getaways" whether they are about "romantic getaways" or "girls' weekends".
During the week, Mike often eats his lunch at his desk while reading some of his favorite websites (www.foxsports.com, www.ESPN.com, etc.). He's checking out the latest rankings to see where his alma mater is ranked and analysis from experts on the "Road to San Diego" (the site of the 2010 Final Four). He notices one of the ads on the webpage he's reading is about a San Diego vacation. Though he's never been to San Diego, he knows it has a nice climate and gets the bright idea that he could kill two birds with one stone if he suggests that a trip to San Diego would be a nice place for a trip with Jill and another couple friend (the husband of that couple also happens to be a college buddy who enjoys hoops as much as he does). Suddenly, the $500 daily spa fee doesn't sound too bad for Mike if it means he can attend the Final Four.
Since Jill had Arizona in mind for a "spa weekend", he figures he needs to sell Jill on San Diego. He surfs over to his DVR home page to see if he can find some shows that highlight San Diego that he can highlight and record for Jill. It turns out one of the shows is in 30 minutes on the Travel Channel so he's able to record it for later viewing even though he and Jill aren't home at that moment. It also turns out that one of the past episodes of Alias had Jennifer Garner's character incognito at a beach party at the Hotel del Coronado in San Diego (she snuck into the private party by swimming in from the ocean in scuba gear with a party dress in stow).
Over dinner that evening, Mike brings up the idea of San Diego as a great location for a vacation and that late March is a particularly nice time to visit (failing to mention that the timing happens to coincide with the Final Four). He lets her know that he's marked some San Diego shows for her to watch including the Alias episode since they have a "Season Pass" for Alias (i.e., it records/stores all Alias episodes). Jill is surprised and impressed that Mike has gone to this trouble.
Meanwhile, let's take a look at what's going on behind the scenes. The cookie that the cable company has stored is keeping track of various actions that Mike and Jill are taking (sites they visited, shows they watched, searches they performed). This behavior is combined with the ad marketplace system running at Google or the particular search provider of choice. This system is similar to Google's Adwords system or Overture's Precision Match. In the future, it's likely to include "behavioral targeting" attributes as well.
In this ad marketplace, millions of similar actions are aggregated and offered up to what by 2010 will be millions of advertisers for sale in a real time automated auction. These marketers will have established their spending levels, behavioral and demographic profiles. In the time it takes for an average search to complete, several advertisements have already been sold against each of the programs recorded for Jill. On the media outlets' sites, they are doing additional optimization (aka "inventory yield management"). This optimization determines what the optimal type of ad to serve is. In one situation it might be a textual advertisement while in other cases, it might be a more traditional form of TV ad.
As Jill goes to watch the shows Mike has teed up, the ad delivery system is poised to take action. The way in which the ads are viewed will be dependent on the couple's billing preference with the cable provider (yet another yield management variable). They may have chosen the free cable option that requires them to watch ads at set periods. As the show starts, a number of advertisements appear at the bottom of the screen. A couple of these have a dollar sign next to them indicating that they can reduce their cable bill if they watch them. This is attractive particularly since Jill wants to watch them anyway since they are infomercials for a San Diego area spa. She can choose to watch them now or later.
Later on in the evening she checks her email before going to bed. The ad delivery system knows this is the same person who has been watching ads about San Diego area attractions so it serves up some discount offers for packages to San Diego which she emails to Mike with a message about how excited she is about going to San Diego. Who knew that an ad delivery system could enhance marital harmony?!
Will these sort of events transpire five years from now? My belief is that they are largely foreseeable. Undoubtedly, the specifics won't take place exactly like this, but it's not a huge leap to get to this place with consumers and businesses that are more than willing to benefit from the experience.
If you buy all or part of this scenario, what does it mean for the parties most financially vested in the ad marketplace - media outlets, ad agencies and marketers? It means further evolution in their business models. Perhaps the most radical impact will be on ad agencies that have already seen their business evolve. In part two, I'll make the provocative statement that Google will be the largest ad agency in the world by 2010. While this potentially ludicrous notion may not seem worth thinking about, viewing the ad agency business through a Google prism should cause ad agencies and their clients to experience profound insights.
If you want to have more fun with the previous scenario, you
can weave in various other variables that include, but aren't
limited to, the following factors:
? Product placement evolution. At one time there was a website that allowed you to buy products that were shown in TV programs. Think about that woven into the aforementioned ad marketplace. This is an evolution of what AdvertisingAge's Madison+Vine regularly reports on.
? User reviews. User ratings of various advertiser products could become another variable determining which ads get served. Amazon-like collaborative filtering can be facilitated thus increasing content consumption.
Will Google be the biggest ad agency in the world by 2010?
In part one, I laid out a future of how Internet-based advertising models will pervade the TV world. If you buy some of these factors, there are inevitable industry changes that will happen to the ad industry. I will make the provocative statement that Google will be the largest "ad agency" in the world by 2010. While this potentially ludicrous notion may not seem worth thinking about, viewing the ad agency business through a Google prism should cause ad agencies and their clients to experience profound strategic insights.
Dramatic industry shifts usually don't happen from obvious places. Ample evidence of that exists if you look at various businesses whether you look at the music business, the encyclopedia business, the newspaper classified business, the retailing business or many others. Companies that too narrowly define their competition inevitably have their business cratered from unexpected places. Aggressive, growth-oriented companies whether they are Google or Wal-Mart don't care about pre-existing industry dividing lines. If it wasn't them, some other organization would gladly eat away at incumbents' businesses even though the leaders of the change are attractive "bogeymen" for those under attack.
If you take a step back, the purpose of ads and search are to connect buyers with someone selling what buyers want (even if they don't know they want it yet). In both cases, fees are collected from the people who have something to sell for connecting them with buyers of those items. No one is rushing to categorize Google as an ad agency -- "they're in the Search business". You don't have to study Google very hard to realize they aren't limiting themselves to the "search business" which is increasingly hard to define in any case. It's important to recognize that Google isn't charging for search; their income is from advertising. As the old saying goes, if it looks and quacks like a duck, it is a duck. If they were considered an ad agency, they'd already be in the top 5 with a much stronger trajectory than any of the top 5 agencies.
You may be saying, "wait a minute, they are more like a media outlet than an ad agency" (which is largely true today) but withhold judgment for a moment and some interesting insights can be drawn. To begin with, they are already doing media planning if the business has a high volume of clicks and it's highly likely they are working on ways to make that easier (and thus scale to smaller advertisers).
If I walked into most offices of the leaders of the largest ad agencies in the world today and stated that Google/Yahoo/MSN are their competitors, at best I'd get a polite laugh. They may say that I don't "get" the ad agency business. Having been on both sides of the challenger/incumbent equation, I can say unequivocally that not "getting it" is usually an advantage for the challenger. The challenger isn't shackled by the current way of thinking and perhaps more importantly, the current business model. Like virtually every other company (especially a public company), Google and "their competitors" are inspired by what will make them the largest sum of money. Today, Google's revenues are advertising-based, but tomorrow they may have increasingly more characteristics associated with the agency business. Comparing some of the assets that agencies have versus Google is instructive. I'll put these in context of some of the criteria I used to evaluate the ad agencies that I worked with when I held large ad budgets.
1. Efficiency with my budget: When my team owned the relationship/budget with an agency, I counseled them to look for padding and inefficiencies as the model shifted from a commission-based model (which had its own issues) to a salary multiplier that seemed like a fair approach based upon the number of people on the account. Furthermore, it was hard to know how well the agency negotiated with media outlets to get the best CPMs. With Google's Adwords, you bid on how much you are willing to pay for a click which can range from pennies to dollars depending on the term. Google has a great feature where if you bid $1.50 for a click and the next highest bidder is $0.75, they'll adjust what they charge you to $0.76. This looks like a more efficient way of spending my ad dollars and infinitely more trackable.
2. Consumer insight/research: I've worked with some fabulous media buyers and account planners. Their ability to dive into various syndicated research to identify the media properties with the optimal demo/psycho-graphics often impressed me. However when you combine the almost unbelievable volumes of click behavior across many thousand websites that provides a very robust picture of brand motivation and preferences. It's an approach virtually any cold-blooded capitalist selling stuff would appreciate and is unrivaled by other means of capturing actual buyer behavior.
3. Ability to reach my target buyers where they "live": Google's Adsense offering (i.e., syndication of their contextual search ads) has major implications and makes them look an awful lot like a media agency. Not only does Google serve up ads on their own high-traffic site, they are syndicating their ads to virtually every nook and cranny of the web. As an advertiser, it gives them an efficient way to reach into highly targeted sites that would be impossible to buy in a manual manner. Anecdotally, I'm seeing Google ads on all kinds of obscure and relatively low traffic sites that happen to be highly relevant to me professionally or personally.
4. Ability to service local, regional and international markets: This has at least two dimensions: First, can you run particular ads for people who live in particular geographies whether that is England, New England or Boston? Second, is it easy to localize the advertisements themselves? Particularly on the first point, it's much easier to do this with Google than the machinations an agency has to go through to make it happen (e.g., working with dozens of different media outlets around the country/world). On the second point, it's comparing apples and oranges since localization of text ads is easy compared to localization of ads that involve more than simple text. That said, they cover many languages and countries today so it's a straightforward process.
5. Focus on driving results vs. their ego: Since much of the execution of a campaign on Google is strictly driven by machines, there is no ego involved. From time to time, one runs up against this dynamic with agency creatives where they are more focused on winning awards than selling your product.
6. Creative work: This is an area where it would appear that agencies have a clear advantage if for no other reason that the creative palette is very limited with Google today. If you look at some of the trends outlined in part one combined with increased bandwidth and broadband penetration in the next five years it seems inevitable that the Google creative palette provides won't be so limited. The advantage Google has in this scenario is that the cost to launch and test a new campaign is low so creatives can refine their creative and copy while avoiding the high stakes and slow turnaround of typical campaigns of today that are bogged down by approvals at the client level. This quick turnaround should shift creatives perspective from thinking of how limited their palette is to relishing the opportunity to get immediate feedback on campaign ideas that may be conceived of, executed and killed/expanded in less than a day.
7. Account service: This is an area where agencies should maintain a clear advantage for the foreseeable future as people-oriented service is a core part of their value proposition. As Google and others gain an increasing share of their customers' wallets, there will be an expectation of increased account service for large accounts. In a competitive market, Google will respond if Yahoo or MSN try to offer better service. This factor can diminish the inherent advantage agencies have.
8. Media neutrality: Most agencies like to claim media-neutrality but it's virtually impossible to find in practice. The core obstacle is that the client's budgets aren't media neutral. There are often different teams, let alone different budgets for different media - print, online, broadcast, etc. This makes it virtually impossible for agencies to be media neutral. The philosophy behind Google's technology is media neutral. It just so happens that it's all executed on HTML webpages right now. Take the notion of delivering ads in the content you prefer to consume, on the device (PC, mobile device, etc.) you happen to be using at the moment and delivering the most relevant ad at the moment you consume it and extend it beyond online. It's not hard to imagine this happening when your TV and radio have their own IP addresses along with your more traditional computing devices (this is already in process).
9. CRM: Marketers and agencies working on their behalf spend large sums of money to create and maintain an accurate customer database that helps paint a picture of their customers' behaviors, likes & dislikes, demographics etc. It's not unusual for a marketer to spend millions each year just keeping their database up to date with basic information such as addresses. Meanwhile, Google's customers do much of the maintenance work themselves as their cookies capture every web search, links you clicked on and when you did it. One area that Yahoo & MSN have a clear advantage over Google is a much larger database of demographic information via their email/IM users (certainly one of the drivers for Google launching Gmail to much fanfare). Combine the demographic information with the surfing and searching behavior, and there isn't an agency in the world who wouldn't die to get their hands on that rich picture of their clients' customers.
Is Google explicitly out to get the agencies' business? Unlikely. It just so happens that when you look at the natural progression of their activities, it ends up dramatically impacting the agency business. The ironic thing is that they are probably spending significant sales & marketing resources cultivating agency relationships with complete sincerity. Like many other successful businesses, over time they will have more and more channel conflict where parties who were previously 100% complementary start to step on each others' toes. In the end, Google won't look like an ad agency anymore than eBay or Craigslist look like a newspaper classifieds business, but they will capture money from the same customers as the business that they are pilfering. It's the agency leaders that should ask themselves what facets of Google's business do they need to develop or co-opt. Agency leaders would be wise to ensure they don't have blinders on regarding their current business and their partners, or they are liable to be victims of an inevitable force.
Dave Chase is a partner with Altus Alliance, which specializes in driving revenue traction for emerging businesses. Before joining Altus Alliance, Chase spent nearly 20 years in the industry with over a dozen years at Microsoft in various senior marketing and general management roles, including his role as MSN's managing director for industry marketing and relations. In that capacity, he was responsible for MSN taking a leadership role within the Interactive Marketing industry to grow Online's share of the overall ad market in concert with AOL, CNET, Yahoo!, Google and other market leaders.
Chase played leadership roles in launching several new businesses within Microsoft including Microsoft's entry into the enterprise software and server business which is now an $8B business. Starting at the dawn of the commercial Internet, he was integral in Microsoft's entry into consumer internet businesses that achieved both critical and financial success.
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