DIGITAL ADVERTISING: On the brink of ad revolution.
Brand Strategy via NewsEdge :
The next five years will hold more change for the advertising industry than the past 50, according to a study from IBM.
It reveals that in the words of the managing director of a European advertiser: "We will see neutral evaluation of all media formats. There is no primary role for linear TV any more."
The research surveyed more than 2,400 consumers and 80 advertising executives from around the world. Saul Berman, one of the report's authors and global lead partner for strategy, change, media and entertainment at IBM Global Business Services, spoke exclusively to Brand Strategy about the insights gathered by his team and what extra information they've gathered since the report was published.
"We try to look at areas where we think there is a need for change in the way business is traditionally done," he explains. "We wrote about TV a few years ago because we believed that like the music industry, it was going to be threatened and challenged by new business models. We have seen that come true with video websites such as YouTube. We believe the same disruption is now occurring in the advertising space."
Change drivers
Berman's research suggests there are four change drivers shifting control within the industry.
Attention Consumers are increasingly exercising control over how they view, interact with and filter advertising. In a multichannel world, they are shifting their attention away from linear TV and adopting ad- skipping, ad-sharing and ad-rating tools.
"We're not going to tell consumers what advertising they're going to watch, where or on what platform. They will have control over that. They will choose whether or not to engage, participate, ignore everything, walk out of the room and how they want to pay for products in different ways," says Berman.
The study also reveals that people spend as much time on the computer as the TV, with 71% of respondents using the internet for personal use for more than two hours a day, compared with 48% watching TV for that time. Among the heaviest users, 19% spend six hours or more on the PC per day, compared with nine per cent who watch the same amount of TV.
Creativity The rising popularity of user-generated content (UGC) and new ad revenue-sharing models, amateurs and semi-professionals are creating lower-cost advertising content that is arguably as appealing to consumers as the material created by agencies. This trend looks set to continue: UGC sites are the top destination for viewing content online, attracting 39% of respondents.
"Increasingly, creativity will come from multiple places," says Berman.
"You'll see consumers creating their own ads for products and then being compensated for that. The content owner in the professional sense will also be more involved in the creative as ads become more embedded in stories.
"For example, we'll see characters in programmes representing advertisers or their messages."
Measurement Advertisers are demanding more involvement-based measures. Simply clicking on a banner ad is not enough; brands want to know how the audience engaged with the content. Two-thirds of the ad executives polled believe 20% of ad revenue will shift from impression-based to impact-based formats within three years.
Berman says: "Five years ago, you got paid for 'attention', whereas now you'll be paid for people's involvement in the ad message. In the future, you'll know who is watching the TV and who is skipping the ads. We'll be able to change the embedded advertising to suit people and consumers will be able to opt-in to choose which types of ads they want.
"People may get different rewards for watching content they're not so keen to see. For example, you might get fewer 'credits' for watching an ad about a new car than for something that's less attractive to you."
Advertising inventories New entrants to the ad market are making ad space that was once proprietary available through efficient, open exchanges. More than half the ad executives surveyed believe open platforms will take 30% of the revenue flowing to incumbent media (such as broadcasters) within five years.
"It's transparency," explains Berman. "This is about the ability to know what's being sold at what prices, to bid on that and be engaged in buying that inventory, rather than it being a closed process with limited access. That may go as far as the consumer engaging with what ads they're going to take and being involved in this process too."
Future models
There appear to be two key concerns for marketers here that will probably co-exist for the foreseeable future: the way in which consumers choose to watch, block or participate in marketing campaigns; and the openness of advertising inventories. The report sets out four possible industry models for the future:
Continued evolution
In this model, the one-to-many form of mass marketing (the brand pushing out the message to lots of consumers) still dominates. But the industry will develop in response to such issues as digital video recorder (DVR) penetration, the popularity of user-generated content and new measurement capabilities. Advertisers will allocate a greater portion of their budgets to channels typically used to build brands, rather than direct marketing.
Open exchange
The industry morphs behind the scenes with little or no consumer influence. Ad formats remain largely the same but advertising inventory is bought and sold through open exchanges, bypassing traditional intermediaries.
Consumer choice
Tired of intrusions into their time, consumers exert more control over the advertising they see and filter out. Formats are forced to evolve to contextual, interactive, permission-based and targeted messages to try to retain their attention.
Ad marketplace
Consumers choose their preferred ad types as they self- programme their media choices and get more involved with the development and distribution of marketing campaigns. Ads are primarily sold through open, dynamic exchanges so any advertiser can reach any consumer. As new consumer-monitoring technologies will be in place, consumer action drives product pricing.
Areas for innovation
Berman suggests that for brand advertisers to survive in any of these futures, they will need to significantly adapt their attitudes. He sets out three core areas where companies need to innovate, regardless of which future scenario comes to pass.
Consumer innovation Brands will need to drive greater creativity in traditional ads while pursuing new ad formats across different media devices.
For example, companies should consider tactics such as campaign bleeds (combining programme content with ads to make the advertising more relevant to the programme) and micro-versioning (developing multiple versions of an ad to make it more personalised and targeted depending on consumer preferences, demographics and location).
They should also think about video ad flickers (speedy ads displayed for a very short time) and pod management (having the right number of ads appear in a commercial break 'pod' and paying careful attention to their order).
Adopting this approach means advertisers will need to make segmentation and personalisation paramount in their marketing. Everyone involved will need to collect and analyse data better to produce the relevant insights to carry out this scenario effectively.
"They need to give consumers more control and make this a two-way communication process," says Berman.
Business model innovation Companies will need to pioneer changes in how ads are sold, the structure and forms of partnerships, revenue models and reporting metrics.
For example, broadcasters, agencies and distributors could gain from impact-based pricing models, UGC ad revenue-sharing models and cross- channel sales methods.
Berman identifies three types of business-model innovation. The first is 'enterprise', where firms can become more specialised around their core competencies and look for other organisations to provide services and scale in areas that don't precisely fit their agenda.
The second is 'industry', where brands seek to change the whole industry's model, following the example of Apple, which has completely changed the way the music and entertainment industry operates.
Finally, Berman suggests brands can change their revenue models and how they get paid. Again, Apple is an example: rather than making most of its money on the music it sells, it makes its cash through selling expensive music players.
"I think we're going to see many more variations on business model in future," he reveals.
Business design and infrastructure innovation Brands will need to support the consumer and business model innovation by creating redesigned organisations and operating capabilities over the advertising lifecycle.
Berman says: "We think you need a more flexible, agile architecture. Also, you need to be able to use data. We think that's the golden goose; there's a lot of data out there. If we can start to analyse that on a cross-channel, cross-marketing-vehicle basis and apply analytics, we can get more bang for our buck."
But Berman warns that putting all these criteria in place and adopting a more open attitude will be useless without companies making sure new ideas come to form the root of their strategy, rather than just an add- on.
He sums up: "You need to embed these things deeply so they really make a difference to your marketing."
For more information on The End of Advertising As We Know It, download the report at Ibm.com.
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