Eating all of advertising

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. 

The destroyer of worlds

“Now I am become Death, the destroyer of worlds”. Those were the words spoken by Robert Oppenheimer, the father of the atomic bomb. The world in 1945 was nearing the end of six years of total war. This is when a completely new technology was unleashed. This type of weapon class emerged marked a complete shift. With the ability to unleash the power of the atom, war and politics would change forever. 

The two main protagonists in the post-war era were the United States and the USSR. They would quickly build up their arsenal but also struggle with how to handle these new weapons. There were no norms and conventions around how to use this new technology. 

What ensued in the following two decades after 1945 is mostly terrifying. Both countries had hawks in their military which argued for pre-emptive attacks on the other side. The rationale was both logical and insane at the same time; wipe out the other side before they do the same thing to us. 

What’s also interesting is the decision on how to handle this power. There were many different nuanced issues which ensued in the following years. The US president was granted sole arbiter in the use of their nuclear arsenal which centralized power in one single person. Some physicists argued to share atomic secrets with the Soviet Union in order to build trust. Some people tried to put the genie back in the bottle which was impossible. 

I can’t help but to draw a parallel with the advent of a connected global population. There is simply no precedent and predetermined rules for an era where everyone is carrying a supercomputer in their pockets. 

Just like the nuclear challenge, this is a deeply multifaceted issue where there are many complex questions.

What does user privacy really mean? 

When you use your map app, you are sharing your location information every second of the day to a private corporation. At the same time, you benefit from the application every time you use it. This a simplistic example of a much more complex issue. The balance between user privacy and benefit is not well understood. To make matters worse, privacy tends to get lumped into the debate as well. 

How should regulation work?

It’s become quite apparent that applying 20th century regulation to current antitrust issues won’t work. Well intentioned legislation often has the side effect of entrenching incumbents. 

This chart below highlights the online ad market share of Google and Facebook in Europe.

When GDPR went into effect, lawmakers in Europe hailed it as a win for competition when in fact the opposite happened. Strong first party data will outclass third party data in terms of performance. The clear winners will be the two companies that own that information. What has since happened is that smaller ad networks could no longer compete. Furthermore, incumbents have more resources to adopt to the new rules whereas the smaller players don’t. I don’t envy the job of regulators that have to take network effects into account.

Should algorithms be allowed to make life or death decisions?

A lot of ink has been written on how self-driving cars will have to consciously take lives in the future. Does the car swerve to avoid a family while killing its older driver? While I do believe this is an important question. The bigger question is how tools made for death will change the face of combat. Drones can already hit targets from the sky while its pilots are located on the other side of the world. What happens when algorithms take the helm and start pressing the kill button? The future of warfare just like everywhere else in society will be increasingly automated. Will it be more moral to be killed by a smart robot? 

What is the future of censorship?

Access to physical media is in decline. Sure, I own a turntable but I would not give it up for my Spotify playlists. I’d like to know who will decide what gets censored and for what reason on these platforms. For instance, there’s a classic episode of Seinfeld called Puerto Rico day. Jerry and Kramer are stuck in traffic during a Puerto Rican parade. Accidently, Kramer lights the Puerto Rican flag on fire. Hilarity ensues as the crowd believes he did it on purpose. When you watch that episode today on a streaming service, you will not find that scene. Some people might find it offensive but how will we decide what is appropriate and to whom?

These are important questions that are still barely understood. The more we dig, newer questions keep arising. That’s why it’s important that each question be well unpacked before we can move forward.

At the dawn of the atomic age, an important question was being asked, is there an ethical way to fight a nuclear war? Seventy years later, as we embark upon a new world, we’re still asking questions with no easy answers.