Published on Feb 04, 2020

Eating all of advertising

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If you believe that software is eating the world, then you don’t need to look much further than the advertising space for evidence of its existence. The ad industry has transformed from a world of gut feeling and intuition to one of data science and engineering. It has not been an overnight affair and we’re still in the transitory phase. What is clear though is that the endgame is near.

The previous paradigm

I worked for 10 years in the ad agency world at the beginning of this shift where digital advertising accounted for less than 2% of the market. It’s now over 50% and it will not slow down. That world was relatively simple. An advertiser gave money to a creative agency to come up with a campaign for its brand. A media agency then came in, prepared a media plan by talking to publishers and then ran the ads across different channels.

The skill set that translated into a successful campaign were threefold: 1) being able to pitch & win companies with large marketing budgets, 2) have strong creative talent that can create remarkable campaigns and 3) tough negotiation skills to obtain good deals from publishers.

The immediate feedback loop for a brand was almost non-existent. The publishers would share data on the reach & frequency of the campaign (god, I hated GRPs) and post-campaign surveys would calculate brand lift. Of course marketers would measure sales lift of their campaigns but the causation was often tenuous.

Sadly, most campaigns didn’t work. Across the industry, it was very rare that a campaign moved the needle for a brand. What made this era special is that once in a while, there were home runs and they succeeded in spectacular fashion. Some campaigns legitimately were huge wins for the customer. Most of the time though, a marketer had to use soft metrics to prove the value of their work. Thus the outsized importance of awards and recognition. The entire edifice rested on suspending disbelief.

This has obviously all shifted towards what we see today. The duopoly of online advertising is here to stay and looking increasingly solid.

The end game

With the inevitable decline of traditional media, all forms of media are being connected. There are some pockets of resistance, notably with live sports but most people’s attention is already being eaten by their phones. It’s pretty clear to say that when people spend their time on a connected device, their behavior can be measured. I know this sounds like Big Brother but it’s what is happening today. With the disappearance of the cookie in the name of user privacy,  the large tech giants are being entrenched.

So what does this mean for capital allocation in marketing? It starts with getting good at data and software.

You need to embed software engineers in your marketing department. Most mature startups are already doing this. Some companies benefit from direct API access on Google and Facebook (past a certain amount of investment).

Second, you need to have data scientists to run cohorts analyses et al. and help the team with their investment decisions.

Creativity absolutely has a seat at the marketing table. When it comes to advertising though, the business decisions are increasingly based on metrics tied to financial outcomes. Only a small percentage of spend will be tied to a non-measurable outcome.

Implications for competitive advantage

I used to believe that the overall level of maturity in digital advertising will increase. That a rising tide lifts all boats. This isn’t the case though. Most companies I’ve worked with haven’t been able to develop their marketing engine and hone this skill set.

I really believe that there is still room to build a strong customer acquisition team which in turn can create a competitive advantage. This is obviously a blanket statement and there are many variables (market, business model, etc.) which come into play.

It’s now about the bottom line

Marketing used to be an expense. The people running the company would allocate a percentage to marketing every year and it would not be tied to a financial outcome. The model has completely flipped. Marketing can now be measured as a revenue driver and as such has a seat at the table.

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