The future of advertising

It’s always nice to get supportive comments so Sivaraman Swaminathan’s comment that ‘your model definitely makes sense and is worth pursuing’ (http://rightsideup.blogs.com/my_weblog/2007/08/beyond-the-pers.html#comments) is welcome. However another one of his comments – that “we will have to forget the word advertising in this eco-system” – sets alarm bells ringing: I am not so sure.

Let’s start with the assumption that we are indeed moving away from yesterday’s persuasion paradigm towards a new, personal decision making paradigm (Beyond the persuasion paradigm: http://rightsideup.blogs.com/my_weblog/). Does that mean ‘the death of’ or even the decline of traditional advertising?

I don’t think so. To see why not, we need to disentangle different elements of the blanket term ‘advertising’: like the air we breathe, it’s actually an amalgam of many different elements.

The drivers of advertising

We tend to think of advertising in terms of seller-centric huff-puffery where companies narcissistically interrupt what we happen to be doing to shout “Look at me! Aren’t I wonderful!” There is a lot of this sort of advertising around. But it is not the complete picture.

Some advertising is actually used by ‘consumers’ as an input into their decision-making processes. Yes, most advertising is just self-interested hustle, but when companies bring new products to market (for example), their ads do actually announce new value opportunities to a sometimes eager audience. That’s why much of the research into so-called advertising ‘effectiveness’ finds that ads which announce ‘new news’ tend to generate bigger, better responses than ads which simply continue tired ‘brand wars’. To a certain degree (and it is only a certain degree) these ads are useful to their recipients.

Advertising generates a ‘win’ for consumers in another important way. This time, the benefits have nothing to do with the actual content of any particular ad but its economics – the fact that it subsidises the provision of editorial content. Yes, interruption advertising can be incredibly irritating, but still many people are willing to put up with these annoyances in return for free access to content they want. This may change at the edges, but the model as a whole is quite robust. It is unlikely to disappear soon.

There are other detailed niches of advertising which also generate consumer value. In magazines like Vogue, the ads are effectively part of the editorial content: people buy the magazine to look at the style suggestions being made by the ads as well as to read the articles. In the case of luxury goods, the ad provides a large part of the product’s value: the symbolic value that users so crave: ‘Look how rich I am! Look how stylish I am!’ We may sneer at such foibles, but I suspect they are a human universal and are therefore here to stay.

In each of these cases, the fact that there is a consumer benefit as well as a seller benefit means that these forms of advertising are probably here to stay.

In addition, there are other benefits for sellers which arise whether they benefit consumers or not.

Advertising agencies like to sell dreams of strong advertising effects to corporate clients: ‘if you use our advertising, it will press buttons in consumers hearts and minds to make them do exactly what you want them to do’. This sales pitch works time and time again, not because it has any foundation in fact but because clients desperately want to hear it. Hope springs eternal and opens boardroom purses, thereby providing an ongoing impetus for the advertising industry (even if, nine times out of ten, the client ends up being disappointed).

There is, however, another way in which advertising really does ‘work’. This is a ‘weak’ influence, but an important influence nevertheless. Human minds are bit like broadband internet: they are ‘always on’, forever taking information in from their environments, the vast majority of which goes in under the radar screen of consciousness. This is how, as organisms vulnerable to danger, we scan and monitor our environments to stay alive.

Ads have become a part of our environment. We ‘notice’ them just as we notice the sound of an aeroplane, the temperature of the room, the smell of the coffee – we just take the information in as part of the routine of every day life.

The effect of this advertising is that when we see the product or brand concerned we ‘recognise’ it. This means two things. First, (by definition) we can only remember products that we recognise – and memories do influence purchases. Second, we are more likely to positively choose a product that we recognise than one we don’t. It’s more familiar, safer, less risky.

This sort of advertising doesn’t actually ‘persuade’ us to do anything and its actual effect on purchasing decisions is quite small. But it is real. Brand and product ‘fame’ creates a competitive advantage for products that are advertised over products that are not advertised, forcing advertisers into advertising arms races – whether they like it or not.

This means that regardless of how much it costs, how wasteful it is, how annoying it is to consumers, and how little persuasive effect it really has, selling companies will probably feel compelled to advertise long in to the future.

Advertising channels

All of the above comments relate to ‘advertising’ in general – not to any particular media channel or industrial category. Once we drill down a level to different media channels and industry categories, a whole series of specific issues kick in, with highly specific implications for each channel.

So, for example, traditional classified advertising for jobs and property can be far more efficiently displayed and far more efficiently accessed by users on the Net. So, far from this form of advertising going into decline, it is likely to grow and expand in the more supportive online environment. This may mean an earthquake for traditional media vehicles which rely on classified ads: even a 15-20% decline in classified ad revenues spells real profitability problems for many trade and professional magazines and many local newspapers. This is a real crisis for the businesses involved. But it is driven by a migration of advertising, not its decline.

The same is true for direct marketing. There are some purposes for which direct mail to physical postal addresses is both efficient and effective from the seller’s point of view, but in many cases data-driven ‘personalised’ online communication is both cheaper and generates a higher response rate. Again: a migration of advertising, not a decline.

The rise of bottom-up demand signalling models – ‘here I am, this is what I want to buy right now’ – may well lead to a diversion of some advertising funds from mass display to personalised sense-and-respond mechanisms in some advertising sectors such as motors or financial services. However, volume-wise, this development is likely to affect a relatively small proportion of total advertising in the short to medium-term future.

Meanwhile, in display arenas such as TV and national newspapers, the twin forces of the editorial subsidy and the inter-advertiser ‘weak force’ arms race means that total advertising spends are unlikely to decline by a huge amount, if at all.

One key factor here is that if a major advertising sector such as motor, financial services, retail or consumer goods decides to shift its spend elsewhere, there are plenty of other industry verticals who would just love to advertise in these vehicles if only they could afford to do so. So we are more likely to see a continuous shuffling of the revenue/advertiser pack than a precipitous cliff-face decline in these media channels.

Meanwhile, all the pro-advertising forces described above – the win-wins behind ‘new news’, the editorial subsidy, the niche markets, the unavoidable ‘weak’ effects of brand fame – apply as much to the Net as to other media. So yes, it is inevitable that the Net is going to become a major advertising vehicle.

Chalk and cheese

What has all this got to do with the rise of personal information management and decision making services? The answer is ‘very little’. The forces that are keeping advertising afloat and driving large parts of it to the Net have actually got very little to do with the forces that are driving the rise of personal information management services. And where they do overlap they are likely to be more complementary than opposing.

For example, as services which help individuals make better decisions grow and mature, many of them will become significant advertising channels in their own right. Take Edmunds.com. It is now the most influential source of buying information for car buyers in the US, and because it provides such useful information to car buyers it attracts huge audiences. These audiences make it a valuable advertising vehicle for car sellers, which is how and why it makes its money – by selling advertising. From the advertiser point of view, it is just another ‘channel’.

So here’s the bottom line. The development of new personal information management services is unlikely either to be helped by a decline in traditional advertising or hindered by its continued healthy growth. ‘Person centric service’ is a new growth industry in its own right.

Yes there are overlaps and these overlaps will grow, but creating the new is not the same as demolishing the old. And the really big, exhilarating opportunity is to create the new.

Alan Mitchell

5 October 2007

Comments

[Paul Hodgson]

Yes, this is quite right. Moving to a customer-centric / VRM world doesn't mean you will never see another ad. It means the direct marketing that reaches you should be a lot more relevant and acceptable, and it means that ATL will become more focused on etstablishing brand values and less about direct response.