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Rethinking “Advertising” for the On-Demand Economy

Why Digital changes the core paradigm of advertising

The media landscape is reshaping for the digital era. That process has been going on for some time. As of now, platforms are replacing publishers as the central hubs of people’s attention. At the same time, users’ can choose where to spend their attention from an ever increasing supply of content. Those shifts influence the dynamics at play when someone tries to get the attention of people for… anything, basically.

Advertising is one of the major forces in the business of getting people’s attention. While parts of the industry look very different than a decade ago, few have stepped back to take a fresh look at the underlying assumptions of “advertising” itself. It might be time to do so.

Attention Between Fragmentation and Centralization

Before we look at advertising specifically, it’s important to understand a general development in the modern attention economy: Content is no longer scarce. The price for both, the production and distribution of basically any kind of media, has decreased drastically over the last two decades. Thus, we are facing an abundance of content.

As a result, there is a lot more optionality for media users. More content, more publishers, more ways to access it. Regardless of the niche you’re interested in: finding relevant information or entertaining content is only a click (or tap) away. I, for instance, am subscribed to 195 YouTube channels, all of which produce highly specialized content that simply wouldn’t have existed on TV.

Back when distribution was the main challenge for any media product, producers had to create content bundles that served as broad an audience as possible. That was true in case of general interest as well as specialized media (the difference being the size of the lowest common denominator). But the internet has reduced distribution costs to (essentially) zero. Today’s challenge is discovery (from the user’s perspective) or attracting users (from the producer’s perspective).

“Content and interest are increasingly fragmented. Meanwhile, the access points to the content are centered in the hands of a few platforms”

This is where the dominant platforms in online media come in. Google and Facebook are the most important players because they possess the largest audiences on the internet (which translates to: globally). Amazon, meanwhile, is getting in position to get its share as well, leaving WPP CEO Sir Martin Sorrell worried at night.

For most users, these three are the online go-to locations. They use Google whenever they are actively looking for specific information, Amazon if they want to buy something, and Facebook for more laid-back discovery of news from friends and the world. Google, of course, also owns YouTube which is the world’s largest video content provider. Other (somewhat) relevant platforms in the attention economy are either dedicated to specific types of content — like Netflix and Spotify — or trying hard to create unique user experiences with differentiated products like Snapchat (which is hard).

So, the situation we are in is marked by an interesting duality of fragmentation and centralization.¹ Content and interest are increasingly fragmented. Meanwhile, the access points to said content are centered in the hands of a few platforms. That’s the result of aggregation.

Advertising in a Digital World

In a broader sense, the pre-internet, mass-media era was characterized by people having to eat what they were served. Nowadays, people are used to being picky. It’s no longer a problem to get whatever you want, whenever you want it, wherever you are. As long as your internet connection is working, the world is at your disposal. Its collected content most easily of all. Media is the prime case study for the shift from scarcity to abundance. Calling this a paradigm shift isn’t overstating things.

This creates a tricky situation for companies. Just as in the old days, they still need potential customers to know about their existence and offering. When the internet came around, most assumed it was just another type of media. They added it to their media mix, branded it a below-the-line channel and by and large went with the same old basic mechanics of creating ads and buying placements. But as it turns out, things are more complicated.

A recent Nielsen study from the UK highlighted the difficulties of said approach when it found that campaigns reached their target audience just 47% of the time. The two industries with the worst performance are traditional, mass-market advertisers: FMCG (fast moving consumer goods) and retail (keep that in mind). Nielsen UK’s Marketing Effectiveness Director, Barney Farmer, explained his reading of the data to Marketing Week:

Digital was made out to be the ultimate targeting system and measuring platform, but it has not lived up to that. People soon found it is based more on devices, cookies and impressions than reach.
Some marketers think they can just apply traditional marketing to digital. They need to look at digital media on its own and think about how you can target and measure it.

You may have notet that the statement’s first part is incoherent. It is no contradiction to be an ultimate targeting system and measuring platform and to not be based on reach. In fact, I’d say the opposite is the case: The more precise you can target certain individuals, the smaller your overall audience is necessarily going to be.

Despite Farmer falling prey to the very thinking he criticizes, the quote’s second part is on-point. Indeed one ought to look at digital on its own.

Digital Advertising Becomes a Commodity

It’s easy to assume that digital advertising is primarily a technological challenge. With that framing, the reason that it’s not working as smoothly as one would hope could be attributed to tools that haven’t been developed yet. Another popular believe is that digitization has merely increased the complexity for advertisers by introducing a whole bunch of new channels. The solution, then, would simply be to master them all.

While both readings of the current situation aren’t necessarily wrong, they fall short. They don’t account for the deeper change that is going on. But before we get there, let’s look at both framings and see where they are mistaken. We can do so in conjunction.

“The platforms are turning digital advertising into a commodity. It’s easily accessible and good enough for most advertisers”

The technological complexity in digital advertising is already decreasing, at least from the advertisers perspective. The concentration of the market in the hands of a few platforms is already in full progress. This has plenty of consequences for the industry. Many agencies and ad tech companies are rightfully worried. But from the advertisers’ perspective, it’s not necessarily bad. The platforms offer very good, relatively easy-to-use technology. Many SMEs use these tools, particularly Facebook’s Ad Manager, completely as a self-service solution.

While we are not fully there yet (and certain niches will always exist next to them), the big platform companies are turning digital advertising into a commodity. They make it easily accessible and, importantly, good enough for most advertisers. At least from a technological perspective.

Advertising and Mass-Markets

But technology and platforms are only one part of the equation. They take care of the distribution of ads. The other half, however, is the real challenge: The selective, on-demand user who lives inside a few very specific content bubbles which are tailor-made for him — by algorithms he trained himself and networks he build. Trying to describe this user with broadly aggregated data like Sinus Milieus is almost offensive to him. Getting this person’s attention takes more than simply knowing what targeting criteria lets you enter his bubble. What good does it do if an ad shows up in his feed only for him to skip it?

At this point it’s tempting to claim it simply takes “great creation” then. That might be true in theory. But it would mean to create very specific ads for a huge number of very small groups of users (let alone individuals). That’s simply not feasible for most companies.

And, more importantly, it overlooks the core issue: The entire offering and economics of most advertisers, particularly the big ones, are based on the idea of mass-markets into which you push your product. Advertising used to work the same way. It was, simultaneously, result and enabler of the globalized, commercial economy that emerged in the second half of the 20th century.

Tech analyst Ben Thompson made a similar observation in his piece TV Advertising’s Surprising Strength — And Inevitable Fall (read it!), in which he depicts the relation between TV Advertising and the business model of advertisers:

I wrote a piece earlier this year called The Fang Playbook that posited that Facebook, Amazon, Netflix, and Google (plus Uber) were structurally very similar companies: all leveraged zero distribution costs and zero transaction costs to own users at scale via a superior experience that commoditized suppliers and let them skim off the middle, either through fees, subscriptions, or ads.
What I described above is the opposite side of the coin: linear television and its advertisers were all predicated on owning distribution and thus owning customers. The Internet has or is in the process of destroying their business models for broadly similar reasons; for now the intertwinement of these models is keeping everyone afloat, but that only means that when the end comes it will come more swiftly and broadly than anyone is expecting.

Where “Advertising” is Headed

If we are developing into a demand-driven pull economy — where the users’ attention is scarcer than whatever companies are trying to sell them — it’s almost inconceivable that what we call “advertising” doesn’t have to change on a more fundamental level as well. While I can’t tell you the specifics of that change, there are some broad trend lines I see emerging.

  1. Advertising, product and business move closer together. The origin of people being interested in a company’s offering is actually having something to offer that people care for. More technically speaking, product or service development need to be driven by demand and “advertising” — what you do to get attention — is a function of that. It wouldn’t surprise me to see this reflected in the way companies organize. On the same note, the harder it becomes to get attention, the more valuable it becomes once you have it. Tying it closer into your business model seems logical (see also point 3).
  2. Distribution is no longer the key challenge. The toughest nut to crack in the physical world was the same for advertisers as for media: getting in front of people’s eyeballs. This was reflected in where the majority of the money went: media spending. But when distribution is as simple as booting Facebook’s Ad Manager and entering your credit card details, its suddenly trivial. Instead, the quality of what you distribute becomes essential as it needs to resonate with users. That means two things: Creating said what is where the money ought to go. And that what is likely going to differ a lot from the mostly bad, irrelevant advertising we see today. I avoid the term content marketing for the whole hype it’s surrounded by, and the fact that many agencies simply put old wine in new bottles, but the core assumption of creating stuff users actually want is right.
  3. Advertising and entertainment continue to merge. Companies have long used otherwise popular people to promote their brands. Back in the days they simply hired them as testimonials and put them in their ads. Today, the same idea — using entertainment and popculture to make advertising more attractive — has been developed a lot further. Probably the most forward-thinking example is Amazon Prime Video. Huh!? That’s not advertising! you say. My reply: If you strictly think about the core challenge of advertising as getting people’s attention for your offering, it is a form of advertising. But instead of bad spots they produce shows that win Golden Globes. To be fair, it’s nothing like advertising at the surface. Prime Video is deeply tied into Amazon’s business model (see my first point). Yet, it fulfills a lot of the same function as advertising. Here is Jeff Bezos at last years code conference:
From a business POV for us, we get to monetize that content in an unusual way. When we win a Golden Globe, it helps us sell more shoes in a very direct way.

4. Data becomes key. Using data to reach customers will become a critical skill for “advertisers” or companies more broadly. Zander Nethercutt makes some good points about this:

“This new world will be marked by a monumental shift away from branding, which is already happening, a shift away from search, which is about to happen, but most important, and perhaps most unsettling, a shift away from trust in the user as the final indicator of their own desire. As we make this shift, and move towards a world in which data — and the mastery of its use — is king, ads will become deterministic.”

Advertising Goes On-Demand

It’s not necessarily useful to come up with ever new buzzwords to describe things. Still, the term on-demand advertising crossed my mind repeatedly while writing this piece. And it might be useful, particularly when written in a more appropriate way: on-demand advertising.

This way, the term’s absurdity becomes instantly apparent. Nobody would ever demand advertising. At least not if “advertising” refers to anything we describe with the word today. But it’s exactly what “advertising “— the things companies spend money on in order to get people’s attention — needs to become. Otherwise it won’t be worthwhile in the modern attention economy.

Thus, rethinking the underlying concept of “advertising” is the task ahead. Once we get there, it’s fair to assume that the advertising ecosystem will look a lot different from today. Companies will have to change their approach towards attention-getting, from budget allocation to how they organize. Agencies must change as well, rethinking the services they offer, the people they hire, and even the way they make money. If the history of change is indicative, not all the players from both sides will make it into the future.² But new ones will emerge to take their spots.

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¹ This paper has some interesting thoughts on the issue as well

² I would particularly hate to be a media agency right now. Their entire business model is reliant upon the assumption that distribution is the key challenge in advertising.