The Death March for Advertising

Last week, I had the opportunity to be a panel member at the Chicago Ad:Tech conference, a gathering of folks on the advertising side of the Internet. The panel I was on went well and received good press (though, I apparently wasn’t interesting enough to warrant a mention in the article describing it.)

However, the more interesting conversations came later when talking to some VC’s and investors who were looking for new investment opportunities. Things livened up when I mentioned how our research was showing that people are less and less accepting of advertising. And they got really wild when I shared how our research is convincing me that advertising’s days are numbered.

Traditionally, advertising was based on a foundation which turns out to be a house of cards. Since the first days of newspaper advertising, it’s been accepted by everyone that advertising is non-accountable. Advertising works, based on faith in the premise that if you put an ad in front of enough people enough times, they spend money. But everyone knows accepting the premise is hard. In fact, if you talk to anyone in the advertising business, they can recite the joke often attributed to Philadelphia merchant John Wannamaker: “I know half my advertising budget is wasted. The trouble is I don’t know which half.”

Except that it’s not a joke. And it’s likely it’s not half. In fact, I’d be willing to bet it’s more like 80%-90%. Trillions of dollars a year are spent on advertising and it’s been generally accepted that half of that money (and likely more) is doing no good.

What if you could actually find which dollars were going to be a waste before you spent them? That’s what’s happening in the world of advertising. New techniques for measuring the effectiveness of advertising (a movement cleverly called “accountability”) are appearing every day. On the Ad:Tech exhibit floor, dozens of companies had methods to track and measure whether every dollar spent on an ad turned into a sale. All of a sudden, we can now start to see which ads are working and which ones are waste. And, as we predicted, most of them are waste.

If you watch users interact with web sites containing advertising, you quickly notice how the users develop techniques to avoid looking at the ads. We’re not the only ones seeing this. Anybody who watches users with an eye tracker (this may be the one good use of them) on pages with advertising can see how users avoid looking at the ads. Others have seen how users even avoid looking at the innocuous Ad-sense ads that populate many sites.

This isn’t just on the Internet. People buy DVRs so they can skip ads on TV. They rent movies and TV show DVD collections to avoid sitting through ads. And now they download $1.99 shows from iTunes so they can watch a 1-hour show in 42 minutes.

So, with these new tools for accountability, we can see where the waste is happening. And, from what we’ve seen in our research, it’s happening practically everywhere.

What happens when accountability is discovered by the bean counters?

For years, those-whose-job-it-is-to-say-NO have been told to trust the premise. Since advertising was all there was, when you removed it, you saw revenues drop. So, it was easy to say, “OK, there must be something to it. I’ll trust the premise.” And they did.

But now, we have new tools. We have methods to say which ads are working and which ones aren’t doing anything. And we’ve realized advertising isn’t all there is.

So, what happens when those-whose-job-it-is-to-say-NO discover this? They’ll start saying No. “No, we won’t spend money on things that aren’t working.” And, eventually, I predict, “No, we won’t spend money on things we can’t measure.”

And that’s the day we bury advertising.

So, where will those trillions of dollars go? Into a better marketing investment, I believe. And that investment will be improving the customer experience.

If you look at any study in the last ten years about how people are influenced to make purchases, you’ll see the biggest contributor isn’t television or radio advertising. It’s not the animated ads that float across your screen when you’re trying to do something else. It’s not billboards or direct mail. It’s not celebrity endorsements or having a logo featured on a NASCAR race car.

It’s word of mouth. What other people say is the best influencer on purchases. If I’m your friend and I go on-and-on about how my TiVo has changed my life and how anyone who loves TV needs to own one of these devices, you start to take the idea of purchasing a TiVo seriously.

And what would make me go on-and-on about my TiVo? Not a great ad. Not a celebrity endorsement. But a great experience.

If I actually find the TiVo does change my life, I’m more likely to tell people about it. And the more people whose lives are changed, the more people are out there spreading the word of mouth.

Word of Mouth Marketing is huge right now. And, at the core of it, is a new premise: you have to give people something to talk about.

Netflix discovered this when they realized 93% of existing customers regularly evangelize their service. Why do Netflix customers love Netflix so much? Because of the total customer experience. A great experience is the best marketing investment they could’ve made. This is why Netflix now has twice the market cap of Blockbuster.

So, I believe advertising is going to die. (And I’m not the only one say this.) It’s only a matter of time. And with the rate of technology feeding the accountability movement, that time is getting closer fast.