The Changing Polarity in Advertising

The advertising business has always fascinated me. I have been “pitched” literally hundreds of thousands of times, and still bear the scars of some of the more memorable entreaties (“Two all beef patties, special sauce. lettuce, cheese…”). I’ve been keenly aware of the psychological principles at play, as well as the business implications of successful – and unsuccessful – campaigns. For most of my business life it was the ad “creatives” – the people coming up with the campaigns – who ruled the roost. To be specific, it was those involved in “general” advertising (picture the forest, the deer, the babbling brook and then the Lexus in the wild) who were in the sexy, glamorous end of the advertising business. It’s the creatives who design and cultivate brands which shape buyer behavior and ultimately influence purchase decisions. They control the big budgets, generate the catchy and beautiful TV and print ads, and get to work with big, powerful, important corporations. Those in the “direct” end of advertising, who are looking for concrete responses (e.g., make a phone call, use a coupon, return a mail-in offer, etc., and are thrilled by a 1-2% response rate) were perceived as being in a far less interesting domain. Supermarkets, auto insurance, life insurance, etc. Not Lexus, Polo or even McDonald’s. The hotshots wanted to be in general. Glamour. Money. Fun. But with results that weren’t particularly measurable. ROI? Good luck with that.

What I’ve written pretty much held for the first 40 years of my life. But the last five years have brought tectonic changes to the world of advertising:

  • Ad inventory has skyrocketed. The number of ways to touch consumers has increased exponentially (online, mobile, social, in-game, etc.).
  • The marginal value of inventory has plummeted. It is increasingly difficult to generate signal among the non-linear increase in noise, yielding the counter-intuitive result that while it may be easier to touch a consumer, it is harder to get your message across.
  • Ad dollars have become increasingly fragmented. Where there used to be TV, print, radio and perhaps outdoor, dollars are being spent across an increasing array of distribution channels.
  • Ad liquidity has dramatically increased. It is far easier to buy precisely what an advertiser wants (targeting a particular customer segment, demographic, etc.) than ever before, and this trend promises to continue unabated.
  • Ad buyers are becoming increasingly sophisticated. Big brands have not stood by and let their destinies be determined by their agencies. They are taking matters into their own hands and changing the relationship from client/vendor to partners.
  • Ad buyers want to see – and pay for – results, not promises. Quantifying the impact of campaigns, be they on- or off-line, has become an essential element of the planning process. Measurement has moved to the forefront, and not only in the “direct” world, either.
  • Publishers have gotten squeezed – hard – but are fighting back. Innovation has largely been driven by the advertiser (demand) side of the business, pushing publishers into an uncomfortable, two-tiered world (small amounts of premium inventory and vast amounts of remnant inventory). However, new tools have been developed that are serving to level the playing field between buyers and sellers of ad inventory.
  • Where creatives focused on “image advertising” were the prom queens, the geeky data scientists who are experts at performance measurement and campaign optimization are today’s runway models. This is not to say that strong creative isn’t as if not more important today than it used to be, but the ability to measure efficacy and to develop quantitative methods for optimizing outcomes is no longer a nice-to-have but absolutely critical to delivering an integrated advertising solution.

It is hard to fathom the changes that have reshaped the advertising business over the past several years, with more in the offing and at a speed we can only imagine. But a few things are certain – the rise of the data scientist is a phenomenon that is here to stay. And the use of quantitative methods for optimizing both ad spend (demand-side) and inventory management (supply-side) will become increasingly prevalent. We are in a new new world, one which is no longer driven by image but by performance. And at the end of the day, it is really all about the consumer. And those delivering the best products and services to the right people at the right time and in the right manner will win. The next-generation advertising industry will help with this.

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About Roger Ehrenberg 94 Articles

Roger is an active early-stage investor, having seeded or invested in over 20 companies in asset management, financial technology and digital media since 2004. Prior to his venture days Roger spent 18 years on Wall Street in M&A, Derivatives and proprietary trading.

Throughout his career he has held numerous executive positions, including:

President and CEO of DB Advisors LLC, a wholly-owned subsidiary of Deutsche Bank AG. His 130-person team managed over $6 billion in capital through a twenty-strategy hedge fund platform with offices in New York, London and Hong Kong.

Managing Director and Co-head of Deutsche Bank’s Global Strategic Equity Transactions Group. In 2000, his team won Institutional Investor magazine’s “Derivatives Deal of the Year” award.

As an Investment Banker and Managing Director at Citibank, he held a variety of roles and responsibilities in the Global Derivatives, Capital Markets, Mergers & Acquisitions and Capital Structuring groups.

Roger sits on the Boards of BlogTalkRadio; Buddy Media; Clear Asset Management; Global Bay Mobile Technologies and Monitor110. He is currently Managing Partner of IA Capital Partners, LLC.

He holds an MBA in Finance, Accounting and Management from Columbia Business School and a BBA in Finance, Economics and Organizational Psychology from the University of Michigan.

Visit: Information Arbitrage

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