Advertisers stop worrying about ITV - there's Google...

A version of this piece was published in Marketing in 2007

Far back in the mists of time, two giants of the media world wanted to merge.  The advertiser and agency industries were up in arms – this would result in higher rates they argued, and they feared the abuse of a dominant position would be inevitable.  After all, ITV had few fans in the media buying community, and was widely regarded as arrogant and complacent (never a good combination).

A high price was sought to permit the marriage of Carlton and Granada, and Contract Rights Renewal was born – a formula that ensured advertisers wouldn’t be penalised if they reduced investment in ITV as audiences fell.

Four years on, and many in the industry are now arguing for the formula to be abandoned, or substantially recast.  ITV no longer has such a dominant position in UK media, and the system is threatening its very survival.

So when Sky stepped in to buy 17.9% of ITV last year, it looked like a tactical move to head off Virgin’s media ambitions, and a logical investment for a content and distribution business to make.

Richard Branson claimed that the deal ‘distorted competition’ – but most saw this as the foot-stamping of the spurned suitor, and not the big deal it might have been five years ago.

But now there’s news that Ofcom and the OFT have thrown their weight behind a move to refer Sky’s shareholding in ITV to the Competition Commission.

ITV’s 2006 numbers make interesting reading.  Under the heading “Strengthening ITV1 and growing digital channels”, the press release owns up to a 12% reduction in ITV1’s revenue and a 5.4% slip in adult audience.  Whilst ITV clearly hope that no-one will read beyond the headline, the harsh reality is clear – ITV is no longer the 500lb gorilla it once was.

Hardly the behemoth of competition legend.

Perhaps more interesting is what all this reveals about the state of thinking amongst UK media executives and regulators. 

There’s a continued obsession with the old world that obscures the real impact of the new.  A group of people who have grown up with TV as the highest-profile medium are now responsible for legislation, regulation and management of that medium, and whilst they can’t have missed the decline in profits (Channel 4’s profits fell 70% in 2006, ITV’s fell 18%), all this competition commission talk starts to look like so many birds arguing over a carcass.

ITV made £375m profit in 2006.  In the first quarter of 2007, Google made 16% of their revenues from the UK.  Assuming they made 16% of their profits here too, that’s £108m.  Even if Google failed to grow at all in the subsequent three quarters (pretty unlikely), they’ll make more profit than ITV and C4 combined this year.

Look at the audience picture, and the gap is even starker.  Together, the ITV channels’ share of commercial impressions was 39.1%.  Google on the other hand has a 79% share of UK searches (Hitwise), and most observers agree it’s got a bigger share of revenue.

So is all this fuss being made about the wrong guy?

I’m not suggesting that Google should be the subject of competition commission investigation.  But ITV is a minnow in comparison, and its likely future significance to UK media is lessening by the day.

Last week saw both the launch of Joost (a potentially industry-changing internet TV player) and the approval by the BBC Trust of the iPlayer.  Apple TV has launched, the BBC are working with YouTube, MSN, Yahoo, AOL and Google are all pushing into this space.  The competitive landscape of our TV future is going to be fought out over the internet, and the players will mostly be global.

Increasingly then, ITV is not just a weaker player in TV, it’s a weaker player in media overall.  But as long as UK media is regulated by looking in the rear-view mirror, the composition of ITV’s share register is still going to look like something we should worry about.

Getting technology to work

A version of this piece was published in Marketing in 2007

Exciting news this week.  I’ve got a new mobile phone.  And as you might expect, although I’m generally a bit bah-humbug about stuff like this, underneath this bluff exterior beats the heart of a nine year-old boy.

Like most mobile phones these days, the fact that it can be used to ring one’s mum is a minor consideration in the feature set it offers.

This one has sat-nav.  It’s got wi-fi (so I can surf the web faster, cheaper, and connect to my home or work network).  It’s got a radio, an MP3 player, spreadsheets, powerpoint, a TV.  Is there anything it doesn’t have?

Well it hasn’t got a user who can make the damn thing work.

It came with a 135-page instruction booklet, and disappointingly (I am a bloke, after all) I’ve had to read parts of it, although it still hasn’t helped with some of the more esoteric functions.

It’s often said that if you want your video programming, talk to a six year-old.  Children it’s claimed, are simply more adept at absorbing and using technology than adults.  But there are good reasons for this.  Kids are happy to spend hours and hours figuring stuff out – most adults simply haven’t the time.  We may have lost the inclination, but it’s largely because the pressures of everyday life give us other priorities.

So when I hear an adult say they “can’t” work some gadget or other, it’s really an excuse – what they mean is they can’t be bothered to spend the time learning.

At this point, I can sense the collective heating of necks under collars of Marketing’s readers, so let me be clear.  This isn’t a criticism.  It’s your right as a consumer.

It is the God-given right of every punter to be able to pick up any new gadget, and be able to figure it out in five minutes.  We don’t like instruction books, don’t want help - we are impatient to get on with the business of consuming. 

And as it is with hardware, so it is with software.  It is the natural prerogative of every user to visit a website and be able to find their way around it without any instructions, getting straight to what they want.

Of course, there is a rare breed who are prepared to trade off ease of use for the distinction of having something others lack.  These early adopters put up with the shortcomings of bleeding edge products and wear their ability to endure these as a badge of pride.

But these folk are the exception.  The vast mass of us live in the instant gratification society, and digital things are right at the sharp end.  We are not prepared to endure a moment’s downtime, and we don’t reward anything other than perfect service.

For a website, the challenge is a little like asking an architect to design a department store where any department is accessible within three steps of the front door, and where even a completely new visitor will know instinctively where to find the bed linen.

For the product designer, it’s the ability to create new features for a product that users will be able to work without any learning investment on their part.  The best example of this is the iPod – a device that succeeded partly because it looked cool, but mostly because its operation was so simple that instructions were surplus to requirements.  Many MP3 players had preceded the iPod, but none had really satisfied the mass market’s desire for the zero learning investment product.

And this is what the mobile market needs.  2007 has been trumpeted by many as the year that the mobile internet arrives, and there’s always a temptation to believe that if enough money is thrown at a market, it will take off.  If this is true, then take-off has got to be sometime soon.  It’s just that first, I’ve got to get the damn thing to work.

Google buys a DoubleClick dilemma

A version of this piece was published in Marketing in 2007

Google’s acquisition of Doubleclick is probably their most significant to date.  The search giant’s failure to persuade the marketing community to adopt their display advertising products put them behind both Microsoft and Yahoo in integrating search and display, and was beginning to concern the investment community. 

With one deal, they hope to address this – allowing them to adopt the position of intermediary between advertisers and consumers in display that they have so successfully established in search.

But some publishers are crying foul, and agencies and advertisers are also concerned.  Is this a good deal for them, or is Google going to use the potential monopoly it gives them to disempower advertisers and publishers to their own advantage?

Doubleclick’s business is roughly 50/50 split between providing adserving solutions for publishers, and for advertisers.

Publishers are concerned about the potential conflict of interest that Doubleclick will be faced with.  Google are a major competitor to (as well as a major revenue source for) many online publishers, and their worry is that by handing information about their clickthrough rates, traffic and audience to a Google company, they’re boosting Google’s ability both to compete with them as a media owner and negotiate with them as a supplier of search listings.

Having said this, Doubleclick is unlike many of the previous acquisitions Google have made – it makes money.  Having just agreed to hand over $3.1bn to buy it, observers hope that the new owner won’t want to kill the goose that lays the golden egg.  But the revenue from this service is small compared to Google’s overall income, and for many publishers, hope won’t be sufficient reassurance.

One of the spurned suitors, Microsoft, is pushing for the competition authorities in the US and the EU to step in and call a halt to the deal, alleging that it will give Google control over 80% of advertising seen by consumers.  Setting aside the irony felt at Microsoft calling ‘monopoly’, and ignoring the sour grapes that losing the deal is understandably making them feel, they’ve probably got a point.

Meanwhile advertisers and agencies are also troubled.  Their approach to media has always in part been strengthened in negotiations by the fact that they knew one or two things that media owners didn’t.  They knew conversion data by site, and they knew the cost of alternatives.  Armed with either, any half decent bluffer could succeed in a media negotiation.

So having one of the world’s biggest media owners take control of all this data is not going to go down well at all.

Advertisers are seeking reassurances not just that their data will remain theirs, but that Google will have no access to it.  Along with agencies, they want to know that Google’s expected future position as a major supplier of display advertising won’t be bought at their cost.

Whilst most who use DoubleClick will have already covered data rights in their contracts, the concern is that if Google can build a dominant market position in adserving, they may seek to use this negotiating strength to demand more data sharing in due course.

All of this is good news for Doubleclick’s adserving competitors, some of whom saw their stock leap 10% on news of the acquisition.

Terry Semel, CEO of Yahoo – another spurned suitor – speaking in the New York Times last week, saw the deal as validation of Yahoo’s strategy of bringing search and display together.  But he also put voice to others’ expectation that some of Doubleclick’s customers would not be happy.

So the jury is very much out as to whether this deal is good news for Doubleclick’s customers.  For all of its success attracting advertising spend, Google may have marketers’ respect, but it has done little to earn their trust.

Doubleclick may succeed in retaining the bulk of its customer base over the next few weeks, but its new owner is going to have to tread carefully if it’s going to avoid creating a rush for the alternatives.

Online ad spend surges, and will keep going

A version of this piece was published in Marketing in 2007

The IPA’s authoritative Bellwether report was published this week, and it’s provided some much-needed good news for the advertising business.  Whilst there’s an understandable reluctance to indulge in an orgy of chicken-counting, the first upward revision of main media ad budgets in 2½ years has been greeted with enthusiasm.

It’ll come as no surprise to regular readers of this column that this is a consequence of online media’s extraordinary and continuing growth, with the recent IAB/PwC survey showing 41% in 2006.

Last week I looked at how rates of growth are declining in online as the medium matures, and there’s no doubt that this trend will continue as a natural consequence of scale. 

But given this trend, how sustainable is this sort of growth? 

The answer is pretty simple.  Very.  And for two good reasons.

First, the supply of commercial audience is continuing to grow rapidly.  Internet penetration grew around 5% in 2006, but more significantly, broadband continued to surge forward.  Ofcom’s April ‘Digital Progress Report’ reveals that 80% of internet homes are now on broadband – that’s over half of all homes in the UK, and it’s 30% more than in 2005.  Unsurprisingly, people spend a lot more (almost double) time online when they’ve got broadband compared to dial-up, and the impact on audience has been significant.

Comscore reports 15% more time online per user in 2006 than in 2005, and that’s fed through to a 20% increase in audiences.

This is important, firstly because it’s an anti-inflationary pressure in the media market, meaning that dizzying levels of growth are still not feeding through to general inflation online.  But its real significance comes at a business level for mass marketers whose businesses rely on the ability to communicate daily with mass audiences.  More and more of people’s time is spent online, and that continues to exert pressure to divert budget that way.

Second, and more importantly, the internet isn’t just a marketing channel.  It’s a channel to market.  Investment in online advertising follows trends in consumer consumption patterns not just in media, but in purchasing too.  In 2006, Enders Analysis estimates online commerce at £30bn, up 43% on the previous year, and accounting for just under 12% of UK retail sales.

And it’s this that’s driving the real growth online. 

In the US, where brand advertising is a bigger part of the online media mix, search takes a smaller share, and online is just 5.8% of total adspend.  Here in the UK, the focus of development in online advertising has been direct response, and this has helped to drive online’s share to 11.4% - double that in the US.

This fundamentally changes the media game.  I spent several years as a TV buyer in the early ‘90s, and my focus was on acquiring media cheaply, and controlling its delivery.  Reach, frequency, ratings, dayparts, discounts against station price.  Nobody ever told me how sales were going, and even when I showed an interest, there seemed to be little connection made between what I did and its impact on sales, except at a rudimentary level if a sales week had gone badly and a scapegoat was needed.

But online, data is king.  We track everything, and we analyse the pips out of it, feeding this back into media deployment, keyword bidding and affiliate management.  And as consumers shift more and more of their expenditure online, it becomes easier to track the impact of what we do – more of it can be measured directly, and more of it is rolled into the modelling we run.

So online budgets are set to continue to grow, because that growth is based on predictive investment models derived from real consumers’ behaviour, and at the less sophisticated end, because that’s what everyone else is doing.

Forecasting buoyant GDP growth, improved corporate profits (a strong indicator of future adspend growth) the Bellwether survey makes good reading for marketers, and even better for digital marketers. 

If digital could boom whilst other media crawled along the bottom of Sir Martin’s bath, they reason, what can it do in an upturn?