ManSavesDog

Always On Article

Or, Dear VC’s, Marketing is s Mess – Please Help

In my recent co-authored book, What Sticks, Why Advertising Fails and How to Guarantee Yours Succeeds (Kaplan Publishing 2006), we estimated that $112 billion of the total $295 billion in U.S. advertising spending is wasted. While most of that a result of ineffective advertising and sub optimal selection of media, I think this is just the tip of the iceberg for the waste and inefficiency in the advertising industry.

As the soon-to-be-former-head of the Interactive Media industry’s trade association (IAB), one symptom of this problem I witnessed firsthand was how slow traditional marketers and their agencies were to adopt the Internet as an advertising medium. While the Interactive Ad industry made a lot of progress during my tenure growing from $6 billion to $17 billion in annual online ad spending, the research that underlies What Sticks suggested that if advertising were rationale online advertising should be closer to $40 to $50 billion.

The retail magnate John Wanamaker over 100 years ago said, “I know that one-half of the money I spend on advertising is wasted. The problem is, I don’t know which half”. Today, say that in a room of advertising people and a ripple of nervous laughter will ensue. In our research, conducted against $1 billion in advertising spending, we found that 47% of the campaigns measured failed before a dime was spent in media, suggesting Wanamaker was right and the industry has not improved much in the last century. As leading edge as advertising is supposedly, it apparently is not progressive.

I would suggest that the ad industry is long overdue for disruptive change. In fact, as a person who really loves the ad business (and who operated as a Venture Partner for a west coast VC); I would go as far as to beg the venture community to get more deeply involved in the advertising industry. Nearly every other aspect of business has gone through disruptive change and technology innovation. Finance departments were revolutionized by both hardware and software developments. Supply chain management has led innovation in manufacturing and distribution. Sales force automation has forever altered businesses and enterprise software has sought to clean up the rest of business wringing out even greater efficiencies. And while there has been an influx of venture capital spending to the Internet, online is only 5% of all of advertising spending. Yes, innovation and disruptive change, often led by venture capital, have affected all others functions of a business, except for marketing.

Having raised money from VC’s for an advertising business, I have heard many VC’s suggest that marketing and adverting are creative businesses and that “VC’s do not do that”. True, it is a creatively driven business but that doesn’t mean there aren’t parts of it that are not and couldn’t use more business science or technology help. While I am sure someone can make a more sophisticated argument, suffice it to say that there have to be a few billion-dollar businesses in addressing over a $100 billion dollars of waste.

Here is where I might focus my efforts in looking for opportunities for venture capitalist to step in.

Infrastructure and wringing inefficiencies out of the processes. Planning, executing, buying, tracking and back office management of advertising is hugely inefficient and an obvious first step for VC’s. The primary billing systems of advertising are not ASP, or even API, driven. In fact, they are closed proprietary systems. Although the Ad Agency’s trade association kicked off an eBiz initiative a few years ago, much of the work is still being done by faxing and phone calls. The enterprise systems that make repetitive processes efficient are badly needed for agencies to continue to make money, especially with the downward pressure on agency fees.

Data and its application to improve Advertising’s performance and relevance: Privacy concerns aside, advertising targeted to consumers that is relevant to the consumer would be major step forward for all media. Irrelevant ads (like men seeing ads for products sold to women) only teach the consumer to ignore advertising. Isn’t there an approach to consistently personalize ads that does not trigger consumers’ privacy concerns (credit cards have figure it out)? Contextual search ads and behavior targeting is helpful but what about the other $285 billion in advertising spending.

Dashboards and better advertising measurement: I suspect most VC’s and the tech industry would be horrified if you knew how media is measured, which is the underlying currency for the business. So prepare yourself. Some TV, and most Radio measurement, is based on paper diaries completed by consumers that are mailed in and compiled by hand (the horror!). It is even embarrassing to me to tell those outside the business. And frankly, what or who is measured is not that great a measurement approach anyway. What is really needed is for marketers to have a dashboard at their desktops, updated daily, of what REAL impact their advertising and marketing is having against consumers attitudes and behavior (sales) in near real time. This is area alone is rife with opportunity. In addition, the issues raised by Click Fraud in search and affiliate marketing still need a world-class solution.

New Channels of distribution to consumers and the ever-increasing new media: How quaint it is to remember back when advertisers had just TV, Radio, Magazines and outdoor to reach consumers just over a decade ago. I believe the world is getting a new medium every 5-7 years at this point. Internet has not seen the last of its development (the Net is not really one medium anyway, it’s many), plus mobile, IPTV and games are coming. There is a lot of investment going into these areas already and that should continue. And please, next time overall advertising suffers a small hick up as it did in mid 2000, do not run for the hills. Generally, advertising resets itself the beginning of each decade (it did in early 80’s, early 90’s and again in 2000) but those adjustments where short lived. I personally will buy and innovate on those dips.

Product improvements and effective advertising: The truth is that advertisers, as pointed out before, are shockingly poor in developing advertising with the assurance it will work. Two years ago, I was in a meeting with the CEO of a major auto company who asked their head of marketing the same question five times, which were all variations of “what do you mean we spend hundreds of millions in advertising and don’t know what it does?” No longer can marketers just rely on their gut. Potential solutions to address this are many and varied, better research tools, better auditing and media measurement, more control over frequency distribution of ads (any commercial shown over 5-7 times to one consumer experiences major diminishing returns) and much more. Maybe not an area for VC’s but still important is making sure ads meet a basic consumer motivation and communicates clearly is critical. I have even suggested to online publishers that they should reject ads that do not work. I would wonder if that process could not be systemized for the entire industry.

And the list goes on and on. What I think is most interesting to me in all this opportunity that if we make the industry work better for marketers and better for agencies then it is likely has be better for media, and for sure better for consumers.

What does all this mean for my friends in the advertising business? Change, you bet. Dramatic change? God, I really hope so. My interpretation of the research from What Sticks suggests that if advertising can really address all these issues, ad spending will not go down and will more likely go up because marketing will play a stronger and more predictive role in boosting a business’s topline and margins. We saw that happen in the research.

I invite the VC’s and Entrepreneurs of Silicon Valley and Silicon Alley and Silicon Beach and other places to look deeply at the Advertising industry. It needs a revolution and you are just the people to do it. Please help.

Originally posted Nov 2006

By Greg Stuart

Soon to be ex-CEO & President of the IAB

Co-Author: What Sticks