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Apr 4, 2016

Digital Ads are Eating Whole Ad Budgets

With consumers increasingly allocating a majority of their time to digital media and technology enabling end to end attribution, performance marketing will eat whole, advertising budgets.

The facts are straight forward:

Consumers spent 48%* of their time with digital media (desktop + mobile) but only 31%* of advertising spend occurred in digital in 2014.
Traditional Print is dying with consumers (4%* of attention) while Radio (11%*) and TV (37%*) are all contracting (an obvious correlation is that Radio + TV are actually being consumed by digital like print was in the 00’s; but that’s a post for another day).
Digital Advertising is predominantly performance, led by Google & Facebook building end to end attribution solutions to enable cost per action ad models at scale.

Kleiner Perkins 2015 Internet Trends Report Slide

What does this mean?

As I addressed in an earlier piece (Performance Marketing is Collapsing the Purchase Funnel), Marketers will continue to allocate an increasing percentage of their budget to digital performance advertising because it provides ROI returns at scale while engaging several phases of the Purchase Funnel. Marketers want to focus on market positioning (brand) and getting their message to consumers (reach) while driving business results. CMO’s are tied to market share (sales) today more than ever. It’s a data driven world, performance drives results; and results are the wholesome ingredients that make up a well balanced meal, aka marketing plan.

The days of TV or Radio buying ad business through trips to warm weather destinations for “continued education conferences” or other boondoggle ad industry bribery aren’t over, but it’s clear their end is in sight. The reasons are consumers are abandoning these traditional channels (Radio, TV & Print), while at the same time technology is enabling performance economic models at scale. So if your primary goal is sales for your product or service, you’re going to focus on the channels that give you the most consumer reach at the best possible ROI. TV, Radio & Print are losing scale fast AND they can’t offer directly attributable ROI economic models.

It will take another decade before the agency layers and marketing leaders fully embrace this, but it’s happening, the smartest and most innovative companies are already there. Uber, WarbyParker, Netflix, AirBnB among many others are building brands primarily through digital advertising, aka performance marketing channels.

*Thanks to @KPCB and Mary Meeker. The 2015 Internet Trends report was used as reference. The Specific Media Consumption and Ad Industry spending data by channel from the IAB (interactive advertising bureau).