Wrenching Changes in Ad Revenue Models

This week, I’ve talked about the importance of information foraging in understanding online behaviors and our interactions with content, the fact that we don’t really think our way through online interactions, but rather navigate through instinct and habit, and yesterday, how different intents lead to different levels of engagement with ads. All of this has been to show how Rupert Murdoch and other publishers are seriously off base in trying to put walls around their content to protect their obsolete business models.

The Planting of Intent

But, as comScore Chair Gian Fulgoni commented on yesterday’s post, does all this mean that display ads have no value? Yes, we agree, ads aligned with intent, such as search and relevant text ads, are the ideal, but something needs to plant that intent in the first place. Something needs to create awareness, which sparks need and kicks the brain into gear to go seek information. In Gian’s words:

there’s another issue that needs to be addressed: not all consumers search for information via an online search query. They’re just not all that rational. As a result, using display ads can get an advertiser a far higher reach against the target audience. And that higher reach can cause the total sales lift from a display campaign to rival that from search – even if the sales lift among those exposed is higher in the case of search.

There’s also another even more important point that we need to consider: brand building. That needs to occur even when the consumer isn’t foraging for information in support of an impending buying decision. Otherwise the value of an individual brand name isn’t going to be as meaningful to the consumer when he / she is in the shopping / buying mode. CPG manufacturers know this well. Every week, their special prices (“temporary price reductions”) are shown in the local newspaper feature ads. Placed by the retailer but funded by the manufacturer. The consumer can pick and choose the products they intend to buy and where they will buy them (and, incidentally, store loyalty is not the norm). This information – delivered by old media still, but, I would argue, aligned with consumers intent to shop and buy – determines, to a great extent, the store at which a consumer shops and the brands they buy in a particular week. But the important point is that the CPG manufacturers don’t just leave it with running these types of feature ads. They understand that they need to be supplemented with “branding” advertising that they run themselves because they need to make sure that their brand value has been firmly established in the mind of consumers before they compare prices across brands at the shopping / buying stage. This type of branding advertising is delivered via TV, print and radio – and increasingly today, via the Internet. It’s a critical part of brand marketing, and I think it should remain that way even in today’s Internet world, because — as one of our clients recently said to me — “God forbid that price becomes the only determinant of consumers’ brand choice!”

I voiced similar opinions in a previous post, No Search is an Island. Search itself has a naturally limited inventory. If no one is searching for a term, there is no inventory to buy. This lack of scale and reach has been the single biggest limiting factor in search marketing. If you suddenly cut out all awareness advertising, you’ll eventually find your available search inventory dwindling in lock step. Gian’s points are well taken, and indeed, one of the biggest questions for me is how much residual branding value is derived from an ad that is noticed but not clicked. As I said yesterday, I think it depends on how pressing the user’s intent is. If they’re browsing content, my suspicion is that the residual value would be higher than if they’re on a focused information finding mission.

Differing Shades of Gray

As is most transitions, the truth is there there is no absolute answer here. One is neither right or wrong, black or white. What is happening is a shift from one type of behavior to another. The answer is gray, and each day, that shade of gray is gradually shifting more from black to white. Murdoch won’t suddenly find his revenue model shutting off one day. But what will happen (and there are dozens of newspaper bankruptcies to support my case) is that the revenue model will gradually erode. In fact, it has been happening for some time. As we switch our behaviors from a destination information economy to a just-in-time information economy we’ll spend less time casually browsing content and more time taking brief forays through search to find specific pieces of information. And when we do so, all the challenges in ad engagement I addressed yesterday will have to be dealt with. Murdoch’s revenue model won’t shut off tomorrow, but it will gradually melt away to the point where it’s unable to support the business. That is why there’s more than a hint of desperation in his rantings. He knows the ship is sinking and he’s lashing out at what he thinks the cause is: Google. Unfortunately, he’s lashing out at the wrong cause. The real cause is his reader’s changing behaviour.

Brand Building = Fence Painting?

The other point I would make about brand building is this: Gian is right, we need some way to build brands in public consciousness. But even the options for building brand are rapidly shifting. It used to be that mass media was the most efficient choice. It offered reach and frequency. It was scalable and could be measured in GRPs. The market was treated like a fence to be painted. What was the most efficient way to apply as much paint to as much area as possible? The answer, the biggest possible spray gun. It was a pretty simple equation: Area of fence X density of paint = complete saturation. The spray gun didn’t even need to be that efficient at painting, we just had to keep pouring in more paint. Which was fine, as long as the fence was all in one place. But now, the fence is scattered over an impossibly large area. There are fragments spread everywhere. Suddenly, the spray gun isn’t working so well anymore. We need a new approach to brand building, and we’re beginning to explore new techniques, such as tapping into social networks and word-of-mouth. It seems in today’s world, Tom Sawyer had it right..the best way to paint a fence is to enlist an army of recruits to do it for you.

You Can’t Put a Wall Around News

The challenge advertisers face now is trying to find a way to reach an increasingly fragmented market who is spending less time with traditional media and are increasingly seeking information in bite-sized pieces, rather than sitting down to a full meal. And that’s a challenge that traditional media, represented by Rupert Murdoch, seem unable and unwilling to face. Their answer seems to be to rant, rave and hope the whole mess will go away. If people are increasingly seeking information through Google and not looking at my ads, fine, I’ll just lock out Google and lock in my audience by forcing them to pay. Murdoch is skiing down the wrong side of the adoption curve. And, as Danny Sullivan pointed out in his Search Engine Land post, you can no longer put a fence around information and keep it proprietary, especially in the news industry. Breaking stories will break in hundreds of ways online – through Twitter, networks, blogs and news aggregators. Even if the Wall Street Journal breaks a new story, they can’t control it. People don’t care about the source anymore, all they care about is the information. Even if Google is locked out of Murdoch’s content, it will find it somewhere else and will index it. And people will go where ever Google lets them go. For this reason, I disagree with Danny about the viability of a mutually exclusive relationship. Google doesn’t need the Wall Street Journal, but I do believe that the Wall Street Journal needs Google.

So what about the deal with Bing? Is that the answer to Murdoch’s woes? After all, you still get search visitors and you control your content. Again, for all the reasons I’ve stated over the past week, I don’t think this is any answer at all. It may look good on paper to two companies that are entrenched in command and control thinking, but it doesn’t reflect the real world at all. And if Murdoch would take a few minutes to glance at the latest search market share numbers, even he might see why it doesn’t make sense to kick the elephant out of bed to make way for the mouse (okay..perhaps a small dog).

In the final analysis, we have people changing their information consumption habits, which is giving advertising a wrenching kick right in its revenue model. The dramatic success of search was indicative of the power and speed of this behavioral change. The successful model of the future will understand and embrace the reality of information foraging and will leverage the changing habits of people. The search part, aligning with consumers when intent is present, is the easy part to work out. The challenging bit will be to swim upstream and figure out the pieces that have to be in place to spark intent and put the mental train in motion. My suspicion is that mass solutions will no longer work. We’ll have to figure out how to brand build one prospect at a time, one relationship at a time. None of this is good news for traditional publishers, but hey, if everyone won in evolution, the world would be a much more crowded place.

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