The Digital Advertising Problem

By: vibethink

May 18, 2016

Let’s take it from the top: How did we get to a place where advertisers feel disempowered in the digital age?

In the early days of the Internet, there was a real sense that we would finally have a objective metrics for success with which to measure advertising. Whole companies were valued on the basis of their traffic, and the impression-based display ad emerged as the currency of online marketing. Advertising was still all about reach but with the added promise that you could measure the impact and performance of your advertising in an unprecedented way.

At that point, the Internet was treated as a new media channel to which we could apply the established advertising model: You paid for access to audiences with the understanding that a small percentage of the people you reached would respond to your message.

Choosing between print, TV, and radio advertising was like picking a stadium. Choosing a particular media company– NBC or NPR or Gannet– told you how full the stadium might be and what sort of people would show up. You were buying the chance to stand at the microphone, and you were trying to reach as many people in the stadium as you could with the best one-size-fits-all message you could create.

A lot of stuff has been worked out over the last decade. The Internet coincided with and fed a consumer technology revolution that has improved hardware and software at mind-bending velocity.

Understand the Digital Revolution

At that point, people were thinking of the Internet as something like infinite print. There were pages and impressions and the job was to put your ad on the pages with the most impressions. The scale of the audience was such that even at a low percentage of click-throughs you could reach a lot of people affordably.

Fast forward to the present. A lot of stuff has been worked out over the last decade. The Internet coincided with and fed a consumer technology revolution that has improved hardware and software at mind-bending velocity. Digital media has evolved with it. Social media emerged as the primary driver for new media audiences. Today, the Internet is a place to consume any and every kind of content without paying for it.

Disruption and Evolution

Over the course of that monumental evolution, we learned that the Internet is not a medium, it’s a space. In terms of advertising, the space is promising because it’s limitless and boundless and it records data. But the space is also risky, because it’s easy to get lost, hard to connect with audiences, and the data is discouragingly honest.

You have to be predictive to act, otherwise you’re just white-knuckling it over the rapids and hoping you won’t capsize. But you also have to evaluate what’s actually happening, otherwise you’re chasing shadows.

Think about what happened to display advertising. Click-through rates went from around 10% in 2000 to .1% today. People were hoping for a better version of the old model. Instead, they got a new model that was less effective and undermined the foundation of the old model. That’s where we are right now and that’s why you’re uncomfortable. We are trying to build the new model.

When you find yourself in a moment of industry disruption, there are huge opportunities, a sentiment that’s become a common refrain for all kinds of startups. On the other hand, there are also lots of chances to waste time, money, and energy. Anybody who has been involved in the technology or media industries in the past decade has experienced both sides of the coin. You have to be predictive to act, otherwise you’re just white-knuckling it over the rapids and hoping you won’t capsize. But you also have to evaluate what’s actually happening, otherwise you’re chasing shadows.

I set my compass for navigating the new terrain for digital advertising and marketing by honing in on three basic forces that have shaped the behavior of the market. They help me explain what is structurally different about new media so that I can evaluate the ever-changing variables that can change a client’s game.

Chris Anderson on Data and the Long Tail

Big Data

You hear a lot about big data. The Internet records everything we do and big data is a name for organizing and using that information. In the business world, online retailers figured this out first and the most successful online marketing and business models have been the result of using consumer data to segment a market and sell people what they want cheaper, easier, and more often.

As a result, the buying, sharing and owning of this data has become the new economy of scale and it dwarfs legacy media. Big Data controls search and search is how people find what they are looking for. You want them to find you.

What you need to know: The people who control this game (Google and Facebook) make the rules of distribution now and you have to play by them.

The Long Tail

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The long tail is a theory about market distribution. The long tail, described by Chris Anderson in a 2004 Wired Magazine article and elaborated on by many others since, is an argument for selling fewer units of more things, rather than selling more units of fewer things. If you think about the stadium again, it means that if there are more people in all the little clubs, or walking around on the streets for that matter, than there are in the biggest stadium in a town, then it makes more sense to treat them as your market if there’s a way to reach them as cheaply and efficiently as you can reach the people in the stadium.

The concept of long-tail marketing is closely related to another digital marketing truth, which is that many of the most successful online businesses are demand aggregators, which means, in essence, they build audiences of scale at the intersection of specific interests and desires and a limitless international marketplace. It’s a model that has helped define all types of online business models but it doesn’t apply to local, finite markets. Or does it?

I would argue that the long tail theory is an instance of how humans and the Internet have evolved together. Narrowly applied, the idea of the long tail market applies in the online world where small niche populations can be aggregated into global markets. But taken as a rule of demand, you can see in the past decade how the choice and specificity available in online markets has fundamentally changed the way consumers in local markets evaluate their choices.

What you need to know: This is why Amazon works and why we’re still figuring out how the Internet impacts place-based advertising markets.

The Tribe

Seth Godin popularized the idea of digital tribes in 2009. While the other two points of the trinity give you a sense of how the Internet works as a system, the idea of tribes helps you understand how people interact with the system, which is really what social media is all about and why Godin’s idea coincided with its emergence as the defining characteristic of digital media consumption.

The idea deals with both problems and opportunities the Internet presents as a space. Basically, you can’t fill stadiums anymore because people expect you to come to their clubs. You can’t fill clubs anymore because people expect you to come to their living rooms. You can’t get into people’s living rooms anymore because people have stopped clicking “Allow.”

So how do you reach people? What makes them come to you? And the answer is the tribe. People feel marginalized and isolated and the human scale of the Internet gives them a chance to identify with a tribe of like-minded people with similar interests and behaviors. Tribes have insiders and outsiders. You have to give something up to buy in.

Godin uses this as a way to preach a mantra of self-actualization. Whether you’re a visionary bent on changing the world or a small business owner, the path to success is to lead your tribe. Translation: Be yourself, be specific, and be good and people will find you; try to please everyone or anticipate the needs of the market, and you’ll get lost in the crowd.

What you need to know: This is why you have to tell your story. It’s good news for mission-driven small businesses and people who do things “the right way,” and it is confirmation of why in Godin’s words “content marketing is all the marketing that’s left.”

What It All Means For Advertisers

People have written books about all three of these ideas and if you take the time to read them all, you will probably understand them better than I do. You will also likely run across the concept of disruption along the way, which is basically the idea that once you start dismantling something it’s hard to stop. We’ll deal with that in a later blog.

The point of this chapter is to explain, in broad terms, why impression-based display advertising has failed and where we are headed. To continue the metaphor, we’ve dismantled the stadiums and now your business is a street performer. You build audience by getting people to stop and listen. That’s your tribe. Big Data is looking for the most successful street performers because it’s trying to satisfy the demands of the Long Tail, so the system will scale up your tribe with breathtaking speed until it outstrips your capacity if you can get people to stop and listen to you. That isn’t about impressions; it’s about earning the opportunity to make a strong impression.

That isn’t about impressions; it’s about earning the opportunity to make a strong impression.