The End of Brand Advertising

The internet has witnessed the conversion of analog advertising dollars into digital advertising pennies (credit due to Jeff Zucker at NBC (GE) for “coining” that metaphor). Despite the fact that a viewer is always just a “click away” on the internet, online advertisements command only a fraction of the cost of far less measurable media – like print, radio, and television. Consider this: an advertisement on MySpace (NWS) might cost $.25 to show to 1,000 people ($.25 CPM), versus $25 for 1,000 readers of Time (TWX) magazine ($25 CPM).

In the good old days of performance-less advertising, engagement didn’t really matter because you generally couldn’t quantify it. Studies on Reach, Frequency, and Recall aside, General Motors (GM) had no way of measuring the marginal benefit (much less revenue!) of a particular advertisement. But on the internet, it is quite clear that if nobody is clicking on your ad, then nobody is noticing it, much less “connecting” with it. Proctor and Gamble has likely spent millions of dollars on Facebook advertisements that attract a few dozen active “followers” – probably the same hit rate they had in Time magazine 20 years ago, but with one key difference: Now anyone can prove that people don’t engage with the advertisement! If only Facebook (and internet advertising agencies) hid such pitiful data, perhaps the pennies would somehow metastasize back into dollar form. When there’s no way to measure the marginal benefit of an advertising unit, it’s very easy to get ripped off.

Pundits will argue that with increased ad targeting, profiling, and all sorts of other algorithmic alchemy, online ad revenues will be boosted. In my opinion, such talk is nonsense insofar as brand advertising (not direct response) is concerned. Rather, a seismic shift is underway – one that will not only change the nature of advertising, but will also show that the last century of offline advertising witnessed a tremendous amount of money being flushed down the toilet. We are a lot smarter than we were 50 years ago, and those analog dollars really should have been analog pennies all along.

The result of this peculiar wastefulness was (and, for the moment, still is) a “private” consumption tax for the funding of “public” content. If the BBC is funded by the British government (i.e. taxpayers), NBC is funded by Proctor & Gamble (PG) Coca-Cola (KO), General Motors, et al (i.e., consumers of those brands). If you happen to watch your favorite sitcom without transacting with any of those brands, then you are free-riding off of those who do spend – a remarkable corollary to the piracy of paid content. The “free content” system of the past century is no different than forcing people to buy NBC content from iTunes, but instead of the cost being charged to their Visa cards, it is tacked onto the cost of their Tide, Cherry Coke, and Chevy Malibu.

Don’t expect it to last, though. As the brands recognize that they are being bilked – rather, that there is at best a tenuous link between consumption of their goods and consumption of the free content they are sponsoring, they will be less likely to foot the bill. For the beneficiaries of free content, the internet is unraveling this whole ecosystem with unwavering speed.

If you are a media company, or a shareholder in a media company, there is a good reason to worry about what the next ten years hold in store. The enemy is not Google or the internet, but rather increased intelligence and analysis of advertising spend, which will irrevocably change the way advertisers allocate their dollars.

Disclosure: no positions

Comments

[Gary Lucido:]

Amen! I've been saying this for a while. I ran an Internet company for a while and the retailers who were our clients held us to a higher standard than their regular advertising. We had to prove the ROI on our advertising while they accepted that there was an ROI on their traditional advertising. I knew that that double standard could not continue. The fact of the matter is that, regardless of the media, there is a lot of advertising out there that is nothing more than ego boosting or "feel good" advertising. That is not sustainable and it will stop.

2008 Dec 28 09:30 AM

[SteveR:]

Excellent article!! I've always wondered how many people out there realize they are paying these hidden taxes if you will. As someone who watches a lot of sports, I have been free riding for decades. Oh, I'm sure I've paid a little over the years but not being much of a consumerist I'd bet my cost has been reduced 80-90% if I was charged directly. Thanks for the insight.

2008 Dec 28 08:02 PM

[knoledgeable1:]

Some of the most backward conclusions I have ever read. Same kind of 'inevitable' logic led to the tech bubble. The narrow focus of this post pre-supposes an 'Online only' consumptiive world. Even with the net erosion, Old media has real and established metrics New Media would kill for. The threat to stand alone New media companies is a hybrid Old-New model that shows that fallacy of New media only ad strategies.

As Barry Diller has aptly stated, these kind of 'new media only' predictions are fad-ish and sophomoric.

2008 Dec 28 08:07 PM

[David H. Deans:]

The data doesn't seem to support the notion that we're better than we were 50 years ago. Traditional advertising and PR firms continue to lead and guide their naive clients -- they tell them that throwing cash down the same old money pit is a wise investment.

Moreover, young communications majors that recently graduated from most universities have been taught by professors who are from the bygone leap-of-faith era of Madison Avenue. What they are taught about 21st Century digital marketing practices is often biased by that legacy thinking (real measurement is a fad, focus on your creativity, don't worry about business impact, etc).

When those new graduates enter the job market they're often greeted by legacy schooled advertising and PR agency executives that are typically clueless about how to engage consumers -- and shift from the old-style monologue to an more interactive dialog.

The notion of a hybrid analog/digital model will likely make sense to those who can't move beyond their own denial. They will keep using their tried and unproven approach to marketing products and services, regardless of the facts.

Some people are terrified of change to their status quo -- many in the advertising industry are fearful of the change that you describe. The end of an era is always painful for those who refuse to let go of the past, and start over.

2008 Dec 29 09:51 AM

[jsp:]

Forgive my directness, but Alex Rampell hasn't a clue what he is talking about. Branding is about building an expectation. i.e., Walmart - cheap stuff. Apple - cool stuff. Mazda - fun stuff. Target - cheap chic. These are companies that have done a good job telling you what to expect and then delivering on their promise. They are branders. it doesn't matter whether they use their buying/product experience, television, radio, the Internet, print - they know who they are and how to deliver. The Internet is just as strong a branding tool as television - you just execute differently. And if you think a "click through" is a measure of success, you are naive, ill-informed, stupid or all three. An Internet ad, properly executed as part of a more comprehensive campaign, does just as powerful a job reminding someone of something they have seen elsewhere as introducing someone to the concept in the first place. I know what GE's Ecomagination campaign stands for because of their Sunday AM ads. I see an Internet billboard referencing Ecomagination, and I don't have to click through to know what it means.

This is the beginning of a new era of Brand Advertising. Using different tools to execute the same principles. If you don't stand for anything, why should anyone care? Branding is all about standing for something, no matter how you get the message across.

Mr. Rampell - please limit your comments to your area of expertise.

2008 Dec 29 09:59 AM

[User 283977:]

The world is changing. However, in your first paragraph I believe you are comparing Apples to Oranges. Readers of Time have certain demographic characteristics that an advertiser might deem worth spending $25 per 1,000 readers to reach. I doubt the same concentration of target demographics is available per 1,000 viewers of MySpace.

As on-line targeting methods improve, you will see CPM rates go up. But in order to get advertisers to pay those higher CPM rates, the on-line advertising business needs to have the services of an independent tracking service that provides the needed reach/ frequency numbers. No one in their right mind is going to trust individual companies numbers.

2008 Dec 29 11:26 AM

[Alex Rampell_:]

(from the author)
To jsp -- a clickthrough is not the only way of measuring the efficacy of an ad. The larger point I am making, and this is my core area of expertise, is the dichotomy between internet advertising and offline advertising.

I think most people take it as a likely conclusion that in 20 years, virtually all media content will be on the "internet." There are two distinct possibilities:
1. Internet ad rates will catch up with offline rates of today.
2. Internet ad rates will stay behind because of inherent measurability.

If all media is online, then there will be one form of advertising, and no "spread."

Hyperbole aside, I strongly believe we will see number 2, and that the ad market will not recover, although there will be a lot of additional places to place ads. Of course GE will continue to advertise, Accenture will continue to advertise, P&G will continue to advertise, etc -- and they are not selling anything directly to consumers (unless your customers are Boeing, Best Buy, or Safeway, respectively), and hence their advertising is brand focused. My point is that the data is better online, which shows that a lot of it is wasted; this was not as clear in an offline world.

JSP, understood on the Ecomagination campaign, but what the heck does that mean/do for GE? What is the marginal efficacy of each advertising unit?

I have a second part in this series about which advertising does make sense.

To Bob Lunn: point well taken. Remnant rates on Time.com are probably also at $.25 CPMs. Once they sell the "premium" inventory, the unsold, or "remnant" inventory, is handed off to a third party network. The result is not pretty.

2008 Dec 29 11:52 AM

[johnbee:]

Brands will advertise by any means but if one means is as good as the other and cheaper then brands will opt for the most cost efficient in these difficult times. There is still a huge resistance to web delivery by ad agencies -particularly by "creatives" who see less scope for their artistic talents but mobile devices (aka cell phones in the US) which already outnumber TV's and PC's five times over will overcome it with largere screens and video capability. Mobile can provide far more relevant demographic and geographic and time sensitive information than any other media and can do so for every single user cost effectively. Many traditional ad agencies don't like it. The wool has been pulled for years over brands eyes with unprovable estimates of audiences. Agency resistance was responsible for causing the Internet bubble collapse in 2002 in my view but now Brands are getting wise to their hype and are looking for cost savings rather than free lunches, and mobile will provide the solution. The key to mobile is its interactivity and Brands will use it as part of a media mix to find out just who is seeing their Press and TV ads for real rather than rely on sparse research. A TV ad can't re-select those most interested in it with a targeted ad, but a mobile ad can if the user wants to see it and to win a prize and redeem it on the spot as my company prizemobilegroup can do. What Billboard or TV or Press ad can do that?

2008 Dec 29 01:52 PM

[mediapro:]

Hi Bob.

You should read the balance of comments to get your answer to the poster's logic.

The most reasonable conslusions and take-aways are combined in other posters' comments. Yes, Time has a measurable demographic, but is the ROI between .25/CPM and $25/CPM worth the extra investment? Another poster has the right answer:

It takes a balanced mix of media and strategy (branding vs. product advertising and promotion) to make the perfect soup.

And another poster had the added insight:

Too many of us old guys were raised in the legacy media world of limited choices. I marvel at the young tech savvy that track the metrics and trends in the online world.

Overall, I agree that the author used the headline for effect, not to present a sound argument with a single conclusion. But he should be excused for not getting it right because he stimulated an interesting discussion.


On Dec 29 11:26 AM Bob Lunn wrote:

> The world is changing. However, in your first paragraph I believe
> you are comparing Apples to Oranges. Readers of Time have certain
> demographic characteristics that an advertiser might deem worth spending
> $25 per 1,000 readers to reach. I doubt the same concentration of
> target demographics is available per 1,000 viewers of MySpace. <br/>
>
> As on-line targeting methods improve, you will see CPM rates go up.
> But in order to get advertisers to pay those higher CPM rates, the
> on-line advertising business needs to have the services of an independent
> tracking service that provides the needed reach/ frequency numbers.
> No one in their right mind is going to trust individual companies
> numbers.

2008 Dec 29 03:57 PM

[knoledgeable1:]

The sine quo non of 'Brand' advertising is that it creates a distinct stand-alone impression. That can be done on a billboard, carved into someone's hairdo, or by a flyer dragged by a plane at the beach. And in each case, the target audience can be reached even if they are holding a fully integrated mobile device.

The effectiveness of most successful 'old' media -- which by the logice employed on this site includes everything but web -- is that it can convey an advertiser's message through focused delivery. It is a simple point that most 'online onlys' dont get about their rapidly fragmenting hand-held universe (because if the web focuses and consolidates -- and thus commands CPM -- then it ceases to be the internet.) I hope I am alive when all message delivery goes online, because I will be investing in ANY other medium.

2008 Dec 29 05:14 PM

[chuckwhole:]

Zucker's words are prominently taped to the rabbit ears on my television and have been since he uttered them. Truth be told the people in the traditional ad space (and I'm one) are petrified of cost to zero world on-line has pushed us in. We've historically run for cover behind "it's a supply and demand" medium ergo pay the freight or someone else will. No longer. It's an over-supply with demand slackening world. Advertisers want ROI as cheap as they can get it.

2008 Dec 29 08:00 PM

[Michael J:]

@ Knowledgeable 1
Aside from direct mail and coupons, what are some of the other "old media . . . real and established metrics New Media would kill for?"

Suppose you eliminate reach. The big brands can reach as much as the media. Consider that Wal-Mart's website was no 3, after Amazon and Ebay. Then consider that Wal-Mart is starting their advertising channel and has opted out of the deal with Prism. Or that Google's advertising budget is, as far as I know, non existant.

So..if reach is not the value, what are the unambiguous indicators of "brand" success?


On Dec 28 08:07 PM Knowledgeable1 wrote:

> Some of the most backward conclusions I have ever read. Same kind
> of 'inevitable' logic led to the tech bubble. The narrow focus of
> this post pre-supposes an 'Online only' consumptiive world. Even
> with the net erosion, Old media has real and established metrics
> New Media would kill for. The threat to stand alone New media companies
> is a hybrid Old-New model that shows that fallacy of New media only
> ad strategies.
>
> As Barry Diller has aptly stated, these kind of 'new media only'
> predictions are fad-ish and sophomoric.

Jan 06 07:18 AM

[knoledgeable1:]

These "big brands" you speak of, do they really need to advertise like everyone else? Are they price takers or makers? How much of the market do their ad dollars represent?

When you are talking about metrics and which media have value and will ultimately survive, these kind of answers are important. Very telling that the latest chatter is about Facebook being bought by a traditional media conglomerate that can help the young twits along with their elusive ad strategy and the making money thing. Movement of eyeballs does not equate to engagement of them.

Good for the growth rate of Walmart's site, now tell me how many of their customers access it. I thought you couldn't. I'll venture the curve will flatten soon.



On Jan 06 07:18 AM dr droock wrote:

> @ Knowledgeable 1
> Aside from direct mail and coupons, what are some of the other "old
> media . . . real and established metrics New Media would kill for?"
>
>
> Suppose you eliminate reach. The big brands can reach as much as
> the media. Consider that Wal-Mart's website was no 3, after Amazon
> and Ebay. Then consider that Wal-Mart is starting their advertising
> channel and has opted out of the deal with Prism. Or that Google's
> advertising budget is, as far as I know, non existant.
>
> So..if reach is not the value, what are the unambiguous indicators
> of "brand" success?

Jan 06 03:20 PM