A version of this piece was published in Marketing in 2008
Last week’s Bellwether report, the IPA’s quarterly survey of marketing budgets, makes pretty depressing reading, with “the rate of decline gathering to a pace not seen since budgets were hit in the immediate aftermath of the 9/11 terrorist attacks”.
As you will have grown used to by now, internet advertising was the only sector to show growth, with search still showing stronger increases than display.
The Bellwether report is so-called because advertising expenditure has been demonstrated to be a leading indicator of economic performance. Because marketing budgets are easy to alter in the short term, unlike other longer term investments (plant, machinery, property) they are vulnerable to being plundered to make up shortfalls in profitability in the wider business.
In some senses this is a logical tactic to adopt – if corporate performance is affected, the share price could slip, and all sorts of unpleasant consequences ensue.
In Jean-Claude Larreche’s book ‘The Momentum Effect’ he divides strategies into two types – momentum and compensatory. Momentum strategies require the organisation to be pulling in one direction. These are powerful and effective, but require a singular determination to align an organisation around the achievement of a single goal.
Compensatory strategy describes a scenario where actions are taken to make up for shortfalls elsewhere in the organisation, rather than to achieve the goals of the business. Sometimes this is legitimate, he argues, because we have to live in the real world. So a manager with a target to make may ‘pull forward’ business from the following year to meet it. He’s going to have to make it up later, but if he doesn’t do this, he may not be in the game later anyway.
The problem occurs when compensatory strategy becomes the dominant type of strategy within an organisation – a company devotes so much energy to maintaining equilibrium that it fails to move forward.
And this is what we see when marketing budgets are cut in tough economic times. It’s of course true that if you see marketing as a cost, you shouldn’t be doing it at all. It should be an investment – and if it pays back, then you should be doing it regardless of the economic climate, both to maintain sales and the health of the brand.
But this is a lot to ask when the share price is already under pressure, so it’s an obvious short-term compensatory strategy to shave marketing budgets even though the negative effects of this might be known, and we’re seeing the impact of this right now on the Bellwether report.
But as we’ve seen, internet advertising – and particularly search – is still making gains.
Internet advertising is often more cost-effective and accountable. This makes it inherently less risky than other forms of media – and in uncertain times it’s not surprising that people are attracted to anything they perceive as more reliable.
And search is (on the face of it) less risky still. Its cost-per-click basis means people regard this as a transfer of business risk away from the advertiser and to the media owner. This risk-transfer has driven the stratospheric growth curve of search, but it is a simplistic model.
Because whilst it’s a hugely valuable marketing tool, search doesn’t create demand. It fulfils it.
So advertisers are right to continue to invest in search during a downturn – after all, it’s more important than ever to be catching every customer. But search depends on other activity to stimulate demand over and above latent levels, and it is this that will be lost as investment slips in other areas.
So if businesses are drawn to spend more on search because of its lower perceived risk, they may find themselves spending still more on this activity to compensate for slower demand.
What might have been a short-term compensation strategy to maintain corporate performance, could become an eroder of efficiency and an inflater of costs – at exactly the time when better performance couldn’t be more important.
Showing posts with label Adspend. Show all posts
Showing posts with label Adspend. Show all posts
Thursday, July 17, 2008
Thursday, June 19, 2008
What's holding mobile advertising back?
A version of this piece was published in Marketing in 2008
In the digital world as we all know, every year is going to be the year of the mobile. The networks haven’t forgotten the £22 billion spent on 3G licences, and they’d love to see the mobile ad market take off like the web did – growing almost 14,000% since 1998.
With estimates of the current market varying between £10m and £20m, if there’s one thing most people agree, it’s that there’s not a lot to go around.
But with flat-rate data tariffs and usable devices like the iPhone well established, it looks like some of the key obstacles are starting to disappear. Though whilst many observers feel mobile is set to take off at last, their optimism may still be premature.
Because whilst the industry’s focus remains on the high-level reasons why mobile has been slow to take off (consumer understanding, technology uptake) there are five simple hygiene factors that are blocking progress right now – exactly as they blocked progress ten years ago for web advertising. Fix these, and the market could be ready to go – fail to address them, and it’ll be pushing water uphill for the foreseeable future.
First, standardising banner ads. Before the IAB standardised banner sizes for the web, production costs often outstripped media – often making online campaigns uneconomic. Resolving this helped online advertising become a manageable proposition, rather than a production black hole – and mobile really needs to fix this. Although the Mobile Marketing Association published some standards in April, uptake has been very slow, and this area is still confusing and expensive.
Second, audience size. The lack of critical mass in the mobile market continues to be an obstacle, with mobile campaigns remaining too small for many agencies to be able to work on them. On the web, this was cured by networks forming to aggregate media sales into buyably large chunks. In mobile, we’ve seen some progress recently with Nokia forming its own sales network, but the market is still too fragmented and will benefit from further consolidation of sales channels.
Third, pricing. If you’re selling media in mobile you’re not going to like this, and you’ll probably say that I would say this. So here goes anyway. You’re too expensive. Right now, cost per thousands in mobile are absurdly high – supported more by ‘experimentation’ budgets than by real commercial demand. Coupled with high production costs, mobile advertising struggles to be cost-effective – certainly next to the web.
There’s every reason to believe that rates should be high in the future (quality of audience, interaction, location) – but right now there’s no research to justify it, and rates are going to have to come down before they can go up.
Fourth, and this is just the order they spring to mind, third party adserving. It’s hard to overemphasise how important this is. For web advertising it is fundamental to agencies’ ability to do their jobs. It enables them to distribute advertising copy (without needing to check manually that it’s running correctly), to target it at individuals and to measure success.
Without it, web advertising would never have proved the case for its cost-effectiveness to advertisers – and just as fundamentally, agencies would never be able to manage the administration that derives from running billions of banners every month.
But adserving still doesn’t exist in any meaningful sense in mobile. And until it does, mobile advertising will remain a largely manual process – restricted both in scale and transparency.
Finally, surely the easiest to fix. Just as with web advertising ten years ago, delivery is terrible. Campaigns start late, finish late and fail to deliver. Without these basics, the marketing community is never going to take mobile up – no matter how attractive the audience.
There isn’t one of these five factors that couldn’t be fixed. But if the mobile business is going to enjoy the boom it’s been looking forward to for so long, it needs to get the basics right first.
In the digital world as we all know, every year is going to be the year of the mobile. The networks haven’t forgotten the £22 billion spent on 3G licences, and they’d love to see the mobile ad market take off like the web did – growing almost 14,000% since 1998.
With estimates of the current market varying between £10m and £20m, if there’s one thing most people agree, it’s that there’s not a lot to go around.
But with flat-rate data tariffs and usable devices like the iPhone well established, it looks like some of the key obstacles are starting to disappear. Though whilst many observers feel mobile is set to take off at last, their optimism may still be premature.
Because whilst the industry’s focus remains on the high-level reasons why mobile has been slow to take off (consumer understanding, technology uptake) there are five simple hygiene factors that are blocking progress right now – exactly as they blocked progress ten years ago for web advertising. Fix these, and the market could be ready to go – fail to address them, and it’ll be pushing water uphill for the foreseeable future.
First, standardising banner ads. Before the IAB standardised banner sizes for the web, production costs often outstripped media – often making online campaigns uneconomic. Resolving this helped online advertising become a manageable proposition, rather than a production black hole – and mobile really needs to fix this. Although the Mobile Marketing Association published some standards in April, uptake has been very slow, and this area is still confusing and expensive.
Second, audience size. The lack of critical mass in the mobile market continues to be an obstacle, with mobile campaigns remaining too small for many agencies to be able to work on them. On the web, this was cured by networks forming to aggregate media sales into buyably large chunks. In mobile, we’ve seen some progress recently with Nokia forming its own sales network, but the market is still too fragmented and will benefit from further consolidation of sales channels.
Third, pricing. If you’re selling media in mobile you’re not going to like this, and you’ll probably say that I would say this. So here goes anyway. You’re too expensive. Right now, cost per thousands in mobile are absurdly high – supported more by ‘experimentation’ budgets than by real commercial demand. Coupled with high production costs, mobile advertising struggles to be cost-effective – certainly next to the web.
There’s every reason to believe that rates should be high in the future (quality of audience, interaction, location) – but right now there’s no research to justify it, and rates are going to have to come down before they can go up.
Fourth, and this is just the order they spring to mind, third party adserving. It’s hard to overemphasise how important this is. For web advertising it is fundamental to agencies’ ability to do their jobs. It enables them to distribute advertising copy (without needing to check manually that it’s running correctly), to target it at individuals and to measure success.
Without it, web advertising would never have proved the case for its cost-effectiveness to advertisers – and just as fundamentally, agencies would never be able to manage the administration that derives from running billions of banners every month.
But adserving still doesn’t exist in any meaningful sense in mobile. And until it does, mobile advertising will remain a largely manual process – restricted both in scale and transparency.
Finally, surely the easiest to fix. Just as with web advertising ten years ago, delivery is terrible. Campaigns start late, finish late and fail to deliver. Without these basics, the marketing community is never going to take mobile up – no matter how attractive the audience.
There isn’t one of these five factors that couldn’t be fixed. But if the mobile business is going to enjoy the boom it’s been looking forward to for so long, it needs to get the basics right first.
Thursday, May 15, 2008
Is digital advertising recession-proof?
A version of this piece was published in Marketing in 2008
News from the sharp end of the financial sector informs us that UK banking lunch budgets are slashed to £54 a head, whilst their German counterparts are barred from expensing trips to brothels. There are probably no more indicative measures for the climate in the city, so it’s safe to assume that it’s tough out there right now.
And whilst everybody’s assiduously avoiding mentioning the ‘R’ word, there’s no doubt that retailers are starting to worry as the credit crunch starts to bite. Share prices in many of the major high street retailers have halved over the last year as the city factors in expected consumer belt-tightening, and retail sales have only been propped up on the high street by deep discounting, with non-food prices falling at their fastest rate for 20 years.
Last time there was a recession, the internet took the full brunt of it. There was carnage as the dotcom bust ripped through the economy, taking hundreds of flaky web companies (and some good ones) with it.
So this time around, is the internet recession-proof, are stock market woes going to hit digital too?
Back in 2001, many internet businesses were still in the pre-profit stages of development. Their markets lacked scale, many of the management teams lacked the experience to weather a storm, and the online advertising market (a key revenue stream for many businesses today) that year was worth just £166m.
Online retail has been the key driver of growth in online advertising, and online retail is a capital intensive business, requiring heavy upfront investment to create a service. This means that scale is critical to businesses online, whether they’re selling airline tickets or insurance policies, because there’s a very low marginal cost of sales.
As the business scales, volume efficiencies develop much faster than in traditional retail where staff and premises are forced to grow in line with expansion.
The pre-profit phase of an online business is a scary place to be. You could be down a lot of money and still waiting for that tipping point to be hit. No wonder many investors pulled the plug back in 2001 – it looked then that the world had lost confidence in the web, and there were real concerns about whether that tipping point could ever be reached.
But this is 2008, and a lot has changed.
For a start, the audience is bigger. 32m people are now online compared to just 18m back in 2001. So any online business now has access to a potential customer base that’s 75% bigger – a crucial scale element that’s driving scale economies into web companies.
And those people now transact more online, 74% agreeing that credit card use is safe online (60% did in 2001). So they’re spending more – the average online shopper’s six monthly spend is now £628, up 37% on 2001.
So there’s a bigger, more economically active audience online now, and they’re spending much more time online than before, driven by broadband penetration that ranks the UK 11th in the world.
All this has created a vigorous online ad market that’s grown 1600% since 2001, reaching £2.8bn last year. For online businesses this is a double benefit. It’s a substantial revenue stream for many, but it’s also a key sales driver.
Advertising in traditional media is (wrongly) often regarded as a cost. But the accountability that comes with both display and search advertising online has caused it to be regarded differently. Whether this is formally reflected in their P&L or not, many enterprises now see online advertising as a cost of sale – which means they can directly gauge the impact on revenue that cutting ad budgets will have.
There’s no leap of faith here – spending less generates less. So whilst the rest of the economy may be in for a torrid time over the coming months, scale, accountability and attitudes are likely to mean digital’s unlikely to share the pain.
News from the sharp end of the financial sector informs us that UK banking lunch budgets are slashed to £54 a head, whilst their German counterparts are barred from expensing trips to brothels. There are probably no more indicative measures for the climate in the city, so it’s safe to assume that it’s tough out there right now.
And whilst everybody’s assiduously avoiding mentioning the ‘R’ word, there’s no doubt that retailers are starting to worry as the credit crunch starts to bite. Share prices in many of the major high street retailers have halved over the last year as the city factors in expected consumer belt-tightening, and retail sales have only been propped up on the high street by deep discounting, with non-food prices falling at their fastest rate for 20 years.
Last time there was a recession, the internet took the full brunt of it. There was carnage as the dotcom bust ripped through the economy, taking hundreds of flaky web companies (and some good ones) with it.
So this time around, is the internet recession-proof, are stock market woes going to hit digital too?
Back in 2001, many internet businesses were still in the pre-profit stages of development. Their markets lacked scale, many of the management teams lacked the experience to weather a storm, and the online advertising market (a key revenue stream for many businesses today) that year was worth just £166m.
Online retail has been the key driver of growth in online advertising, and online retail is a capital intensive business, requiring heavy upfront investment to create a service. This means that scale is critical to businesses online, whether they’re selling airline tickets or insurance policies, because there’s a very low marginal cost of sales.
As the business scales, volume efficiencies develop much faster than in traditional retail where staff and premises are forced to grow in line with expansion.
The pre-profit phase of an online business is a scary place to be. You could be down a lot of money and still waiting for that tipping point to be hit. No wonder many investors pulled the plug back in 2001 – it looked then that the world had lost confidence in the web, and there were real concerns about whether that tipping point could ever be reached.
But this is 2008, and a lot has changed.
For a start, the audience is bigger. 32m people are now online compared to just 18m back in 2001. So any online business now has access to a potential customer base that’s 75% bigger – a crucial scale element that’s driving scale economies into web companies.
And those people now transact more online, 74% agreeing that credit card use is safe online (60% did in 2001). So they’re spending more – the average online shopper’s six monthly spend is now £628, up 37% on 2001.
So there’s a bigger, more economically active audience online now, and they’re spending much more time online than before, driven by broadband penetration that ranks the UK 11th in the world.
All this has created a vigorous online ad market that’s grown 1600% since 2001, reaching £2.8bn last year. For online businesses this is a double benefit. It’s a substantial revenue stream for many, but it’s also a key sales driver.
Advertising in traditional media is (wrongly) often regarded as a cost. But the accountability that comes with both display and search advertising online has caused it to be regarded differently. Whether this is formally reflected in their P&L or not, many enterprises now see online advertising as a cost of sale – which means they can directly gauge the impact on revenue that cutting ad budgets will have.
There’s no leap of faith here – spending less generates less. So whilst the rest of the economy may be in for a torrid time over the coming months, scale, accountability and attitudes are likely to mean digital’s unlikely to share the pain.
Thursday, April 3, 2008
We haven't yet scratched the surface of digital
A version of this piece was published in Marketing in 2008
About this time of year, it’s traditional to gasp in amazement as online continues to absorb a still greater share of the UK’s advertising spend. The Internet Advertising Bureau announce another notch on their bedpost, analysts start trying to identify the winners and losers, and the advertising community continues to polarise into those who are seizing the opportunity with both hands, and those who are sticking their fingers in their ears, closing their eyes and humming loudly to themselves.
In the US, where internet advertising grew 18.9% in 2007 (the overall ad market grew 0.6%), publishers are looking to the UK to understand our experience here. Share of total advertising spend here is double what it is in the US, and relative to population, the UK online advertising market is the biggest in the world.
So given the strong base built over the past five years, it’s all the more remarkable that the new figures published this week by the IAB have shown yet another substantial rise in online budgets.
The market grew by 38% in 2007, only slightly behind its 2006 growth of 41%. But this hides the fact that in volume terms the market actually expanded faster – by £797m in 2007 compared to £649m in 2006.
Search held its share of online, increasing 38%, and the IAB’s numbers show that market to have reached £1.6bn. Google makes up 79% of that, their growth surging ahead of the market and continuing to consolidate the lead that they’ve successfully established in Europe.
The big success story is display advertising, which grew 31% in the year – boosted by the continued boom in ecommerce.
The online market has continued to confound the ability of the industry’s Nostradamus wannabees – with both the major media agencies and the big analysts once again significantly underestimating the real rate of growth.
So what’s driving this unparalleled expansion?
It’s easy to look at the micro here. Automotive up, recruitment up, FMCG up. But these are symptoms rather than causes of this extraordinary growth – there are two, more fundamental, factors at play.
First, internet advertising is a global market.
Whereas technologies (HDTV, DAB radio, colour newsprint) in traditional media tend to emerge in single geographies and expand on a territory by territory basis, internet technologies can emerge in any place in the world, and spread overnight across the planet.
This applies as much to applications (skype, BitTorrent) as it does to media properties (YouTube, Craigslist) and hybrids of the two (Facebook) – and it means that the internet market has a global mindset.
It’s often assumed that internet companies regard traditional media businesses as old-fashioned. In fact, they often regard them as parochial – slower, strategically cumbersome and competitively less challenged.
And this is the second factor. This openness, this bigger worldview has led to a hypercompetitive environment, where evolution and revolution happen before our eyes. It’s a business that’s attracted ambitious, creative and driven people whose interest is sparked by the disruptive effect of their businesses – finding new ways to do things, often in ways that firstly undermine and then frontally assault the status quo.
eBay didn’t copy Sothebys, Google didn’t copy Yellow Pages, Craigslist didn’t copy Loot.
So we shouldn’t expect incremental change.
The internet media market has challenged the status quo not least because it is more than just an advertising market. It’s a distribution medium, a channel between people and a consumer research lab, and those who model its revenue potential on the basis of simple advertising end up looking merely parochial.
UK marketers are leading the world in their adoption of digital, both as a marketing channel and as a channel to market. But online advertising reaching £2.8bn in 2007 is a symptom of something much bigger – an indication that perhaps we still haven’t yet really scratched the surface.
About this time of year, it’s traditional to gasp in amazement as online continues to absorb a still greater share of the UK’s advertising spend. The Internet Advertising Bureau announce another notch on their bedpost, analysts start trying to identify the winners and losers, and the advertising community continues to polarise into those who are seizing the opportunity with both hands, and those who are sticking their fingers in their ears, closing their eyes and humming loudly to themselves.
In the US, where internet advertising grew 18.9% in 2007 (the overall ad market grew 0.6%), publishers are looking to the UK to understand our experience here. Share of total advertising spend here is double what it is in the US, and relative to population, the UK online advertising market is the biggest in the world.
So given the strong base built over the past five years, it’s all the more remarkable that the new figures published this week by the IAB have shown yet another substantial rise in online budgets.
The market grew by 38% in 2007, only slightly behind its 2006 growth of 41%. But this hides the fact that in volume terms the market actually expanded faster – by £797m in 2007 compared to £649m in 2006.
Search held its share of online, increasing 38%, and the IAB’s numbers show that market to have reached £1.6bn. Google makes up 79% of that, their growth surging ahead of the market and continuing to consolidate the lead that they’ve successfully established in Europe.
The big success story is display advertising, which grew 31% in the year – boosted by the continued boom in ecommerce.
The online market has continued to confound the ability of the industry’s Nostradamus wannabees – with both the major media agencies and the big analysts once again significantly underestimating the real rate of growth.
So what’s driving this unparalleled expansion?
It’s easy to look at the micro here. Automotive up, recruitment up, FMCG up. But these are symptoms rather than causes of this extraordinary growth – there are two, more fundamental, factors at play.
First, internet advertising is a global market.
Whereas technologies (HDTV, DAB radio, colour newsprint) in traditional media tend to emerge in single geographies and expand on a territory by territory basis, internet technologies can emerge in any place in the world, and spread overnight across the planet.
This applies as much to applications (skype, BitTorrent) as it does to media properties (YouTube, Craigslist) and hybrids of the two (Facebook) – and it means that the internet market has a global mindset.
It’s often assumed that internet companies regard traditional media businesses as old-fashioned. In fact, they often regard them as parochial – slower, strategically cumbersome and competitively less challenged.
And this is the second factor. This openness, this bigger worldview has led to a hypercompetitive environment, where evolution and revolution happen before our eyes. It’s a business that’s attracted ambitious, creative and driven people whose interest is sparked by the disruptive effect of their businesses – finding new ways to do things, often in ways that firstly undermine and then frontally assault the status quo.
eBay didn’t copy Sothebys, Google didn’t copy Yellow Pages, Craigslist didn’t copy Loot.
So we shouldn’t expect incremental change.
The internet media market has challenged the status quo not least because it is more than just an advertising market. It’s a distribution medium, a channel between people and a consumer research lab, and those who model its revenue potential on the basis of simple advertising end up looking merely parochial.
UK marketers are leading the world in their adoption of digital, both as a marketing channel and as a channel to market. But online advertising reaching £2.8bn in 2007 is a symptom of something much bigger – an indication that perhaps we still haven’t yet really scratched the surface.
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