Frenemies Page 29
The net neutrality rules were seen as especially significant by outgoing FCC chairman Tom Wheeler, who somberly said in a conversation we had weeks before he departed that equal broadband access was vital to advertisers. “Martin Sorrell ought to care about the ability of folks advertising on IP-based services being able to freely reach consumers in a fast, fair, and open net.” Consumers, he continued, want access to advertiser-supported content “without somebody setting the terms of how you can get there or, worst of all,” do what DirecTV once did, which was to learn of an attractive business and jump into that business themselves and give it away for free. This monopolist behavior is why federal courts ruled against Microsoft when it crippled the Netscape browser by giving away its own Internet Explorer browser for free. Within weeks of taking office, the new Trump administration and the Republican Congress did roll back the privacy strictures of the Obama administration. And, in November 2017, FCC chair Ajit Pai proposed to scrap the Obama administration’s net neutrality rules. He did this on the same day Trump’s Justice Department announced it would block the merger of AT&T and Time Warner as a violation of antitrust laws.
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The changing rules of the game in Washington only heightened the advertising and marketing world’s sense of turmoil. Yes, agencies were increasingly troubled that clients were treating them as extraneous middlemen by performing more agency functions in-house. Yes, they were not happy that their customers, media platforms, now vied to become ad agencies. Yes, they worried about competition from consulting companies. And yes, they obsessed about the growing power of procurement officers and the escalating mistrust between agency and client fanned by Jon Mandel’s accusations and the resulting ANA report.
But these could all be categorized as competitive challenges, not existential threats. The digital giants, however, particularly Facebook and Google, might pose an existential threat. By their nature, these companies are disrupters. They want to eradicate extraneous middlemen. They may begin in one industry, but when they spot new opportunities, they seize them: Google’s tentacles spread from search to television to mobile phones to driverless cars to the Internet of things to cloud computing. Facebook went from social networking to IM to Instagram to the work of Carolyn Everson’s growing armies of marketing teams. Imagine the advantages Facebook will reap if, as Carolyn Everson predicts, it adds a Buy button to facilitate e-commerce for its advertisers. Digital frenemies follow the immortal words of George Washington Plunkitt, “I seen my opportunities and I took ’em.”
Asked what Facebook and Google’s real designs on advertising were, a central player in the digital world with deep ties to both companies says he would honestly answer if he could speak anonymously. The answer, he says, begins with the fact that executives below the top in the ad world who perform much of the copywriting and art and account work are poorly paid and no match for the talent at companies like Facebook and Google. “I think what Facebook and Google see is, ‘Oh my God, this is The Gang That Couldn’t Shoot Straight and they’ve been given the keys to the U.S. Treasury! If we could just get our shit together marginally better than these jokers, we’d be rolling in dough.’ There’s an arrogance there. But a valid arrogance.” He was dubious that digital companies would try to compete by creating ads, because “that business doesn’t scale” since it’s not reliant on machines and algorithms. But he had no doubt they would come after media agencies like Irwin Gotlieb’s GroupM: “No question they’re competitors. Frenemies was Martin’s word. I think he was just trying to be polite. The digital companies try to be equally polite because they still have to go through the gatekeeping of a GroupM or a WPP. But in the end, it’s a battle of two cultures: Math Men versus Mad Men.”
Martin Sorrell was not polite when he said worries about a third digital giant, Amazon, sometimes kept him awake nights. With almost half of all online retail sales and a wealth of the most valuable consumer data, “Amazon knows what sells and what doesn’t. They provide 25 percent of all cloud computing,” Sorrell says. They don’t share their data. Increasingly, they enter WPP’s client businesses—making products that compete with what Unilever and P&G sell, taking on Walmart, buying TV shows, selling food and produce. “If I ask my clients what they worry about most,” Sorrell says, “they say Amazon.” With the data they have, he frets that Amazon will slide into the advertising business, offering to help target and place the ads of his clients, supplanting GroupM.
Mobile phones pose another existential threat. They have already fundamentally transformed the ad and marketing business, and when 5G replaces 4G and 3G speeds for mobile devices sometime in the next several years, nearly matching the broadband speeds of cable or telephone fiber, the impact should be profound. A movie can be downloaded in an eyeblink. Annoying download waits will disappear, providing a boost to all video, including video ads and virtual reality. Driverless cars, which must ping other cars on the road many times each second to avoid crashes, will receive a boost, as will robotics. The varied devices that make up the Internet of things will seamlessly communicate. A decade ago, most digital content was text. By 2016, half was video and photos. Advertisers know that the most effective mobile ads engage the consumer with video. This experience can only be enhanced with 5G.
Once, when information about products was scarce, consumers learned about products from advertising. The consumer was hungry for information and traded their time for it. Today, as marketing consultant Gord Hotchkiss wrote for online publication MediaPost, “The basic premise of advertising has changed. Information is no longer scarce. In fact, through digitization we have the opposite problem. We have too much information and too little attention to allocate to it. We now need to filter information.” Advertising that attempts to sell feels false, intrusive. Available ad-free options—Netflix, HBO, Showtime, YouTube—reinforce the desire to watch television the way we watch movies, without interruption. This desire is further reinforced by social networks, which accustom citizens to two-way communication. The new “central verb for us in marketing is: listen,” Hannah Grove, the executive vice president and CMO for asset manager State Street, said at a Financial Times marketing conference. “We’re all humans and we don’t want to be marketed to. We’ve gone from a cathedral to a marketplace.”
What we definitely do know is that sending ad messages to our very personal mobile phones, whether over 5G or 4G, is fraught with both danger and opportunity for advertisers. Terry Kawaja of Luma Partners holds up his iPhone and says, “This thing fundamentally changes everything. We have never had a media channel like this one. We’ve never had a media channel that’s personal, that’s gone with us. The ubiquity—everyone has a phone. And the persistence—it’s always with you. And the functionality—I can buy something online, I can get to a Web site, I can make a phone call.” He is optimistic that in the long run advertisers will figure out how to better market their products. But he concedes the peril when he adds, “Advertising was constructed on the notion of interruption.” In an era of mobile phones and social networks, word of mouth becomes the killer marketing tool. Power has dramatically shifted to the consumer. Or as NBC Entertainment chairman Bob Greenblatt declared at a late November 2017 forum sponsored by his network, “Consumers hate advertising. People are running away from advertising in droves, and so that, to me, is the crux of the problem. How do we stop that from happening?”
Artificial intelligence poses another existential threat to advertising. Rishad Tobaccowala thinks of AI as the third disruptive era, a “seismic shift” as profound as the introduction of the Internet browser in the 1990s, followed by the iPhone in 2007 and what it meant for social networks. All the data AI collects in the cloud from search and social networks and stores allows “the machine to figure out who to talk to” and all these ingredients “write software with the ability to create an ad.” Or an individualized message. Tobaccowala’s prognostigations are supported by a late 20
16 global marketing survey that reported that more than half of CMOs expected AI’s impact on marketing and communications to exceed the impact of social media.* Just the increased use of virtual assistants like Amazon’s Alexa or Microsoft’s Cortana will translate to what they call “programmatic consumption.” Instead of a consumer spending time selecting a product and placing an order, these will be automated—“in other words, purchase decisions will increasingly be made by computers, rather than by consumers standing in shops.”
Joe Schoendorf, a veteran venture capitalist at Accel Partners in Silicon Valley, imagines a time when AI installs software in your refrigerator. With bar codes on the bottles and containers, the sensors in the refrigerator will send replacement orders to your store when the milk is low. Or will tell you “of a generic product that can save you eighteen percent. How is an agency going to market to machines? And when AI is fully developed and you have machines talking to machines and machines can produce ads, what’s the agency’s value now?” More ominous for the agencies, he adds, “I think Amazon has already figured this out and the Amazon Dot”—a voice-controlled device connected to Alexa—“is the first incarnation of this strategy.”
James Whittaker at Microsoft says, “In a world of data, you may not need ads.” Machines will determine the cheapest prices and take the guessing out of deciphering what the consumer wants. “Once you know the consumer’s intent, why do you need a creative ad?” Or an agency, since, he says, the store or the brand can communicate directly with the consumer, ushering in what marketers hail as one-to-one marketing.
This brave new world is not imminent, concedes Whittaker. Figuring out a consumer’s intent “is revolutionary,” he says, but change usually occurs “incrementally.” And maybe machines will be unable to decode a person’s intent. Or unable to create marketing messages that move consumers emotionally. Or to supply the human judgment we call wisdom.
Enter programmatic advertising, which relies on AI. While programmatic has grown more slowly than some predicted, and has been successfully resisted by Les Moonves and TV network sales forces, today a majority of digital display ads are automated, and a 2016 study by Zenith Programmatic Marketing Forecasts predicted it would swell from $5 billion in the United States in 2012 to $64 billion in 2018, although its growth lags in the rest of the world.
“Our Manhattan Project is programmatic advertising,” says Bob Pittman, CEO of iHeartMedia. “If we invented radio today we would call it digital. Yet we still sell advertising the same old way.” To automate sales is quick and easy and reliant on a wealth of data, he says. Unlike TV, whose big audience is at night when viewers are home, his radio audience is all day, so he believes he has a shot at locating consumers when they are about to shop, thus demonstrating to advertisers the effectiveness of his radio ads. If programmatic buying spreads to all platforms, including television, many questions arise, led by: Since the machines buy audiences, not space on Web sites or TV channels, how do marketers prevent their friendly ads from appearing on unfriendly sites, as happened in 2016?
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A central future question for marketers becomes: How to reach consumers with messages that don’t feel like an annoying and interruptive sales pitch? Too slowly, the industry has begun to address this question. Think how slow the ad world has been to stop relying on annoying banner and pop-up ads. Think of those TV ads that hog about twenty minutes of each cable or broadcast hour. Think of the products you just purchased online that appeared constantly in ads on your Gmail screen. Why did it take Google until June 2017 to announce it would terminate these?
Designing the Apple Store as a tourist attraction as well as a service center has been a brilliant marketing tool for Apple. Starbucks stores attracted more traffic by creating a community spirit with free Wi-Fi. Elon Musk’s Tesla does no advertising, yet news of this innovative and stylish electric car has propelled Tesla’s stock above that of most other auto companies. Advertisers have begun to recycle the “Brought to you by” approach once so popular that in 1950 three of the top-rated shows on television were NBC’s Texaco Star Theater, the Philco Television Playhouse, and The Colgate Comedy Hour. The impediment to a sponsor paying for a half or full hour of programming is, of course, financial. The cost of each episode of a one-hour drama would be north of $5 million, and a lot more for a hit, whereas the cost of producing and placing a thirty-second ad would be about $300,000.
Today, as we’ve seen, instead of the General Electric Theater, General Electric offers Breakthrough, a series it codeveloped with the National Geographic Channel directed by such renowned storytellers as Peter Berg and Ron Howard. The cost is not extravagant. Instead of a “Brought to you by GE” banner announcement at the beginning of an episode, it weaves GE scientists into the script. This form of product placement has enjoyed a comeback. Fox’s Empire took it further: Pepsi didn’t just pay for the sight of a Pepsi bottle; Pepsi was integrated into the story line when an actor competed for a Pepsi Performer contract. More blatant sales pitches were adopted by former ad man Donny Deutsch. On his USA Network show Donny, his character faces the camera and rhapsodizes about Hak’s BBQ Sauce and Purity Vodka, two sponsors. Deutsch’s pitch is bolder than the Jack Benny show when Benny extolled Lucky Strike cigarettes or Jell-O.
In the future, Les Moonves predicts, there will be more sponsored shows on CBS, more product placement, and more experimentation with shorter interruptive ads, with six-second pop-up ads replacing thirty-second commercials. But he did not plan to follow the lead of NBC, Fox, and Turner Broadcasting, who vowed to reduce the number of commercial minutes and charge a premium for what they assumed was more exclusivity. “I think our ad load works,” he says, stressing that 65 percent of CBS’s viewers watch their programs in real time. However, Fox did produce some contrary evidence: by reducing its ad loads by 20 percent for the Teen Choice Awards in August 2017, advertiser prices went up and the show produced one third more revenue than it did in 2016.
Inevitably, other marketing moves will substitute for interruptive ads. Witness popular Red Bull concerts, or brand names on the shirts of professional sports teams or their stadiums and arenas. Still another surging form of marketing, IPG’s Michael Roth thinks, will be rewarding consumers with discounts, as long as they’re “relevant” to the particular consumer. Advertisers will know more about individual consumers—for example, what they search for—allowing car manufacturers to target potential car buyers. “Artificial intelligence will say, ‘This guy buys a car every two years.’ Six months before the two years come up, they inundate him with messages: ‘We know it’s time for you to be looking for a new car. Here’s two thousand dollars off if you come in next week to buy a car.’ That’s relevant.” Digitally connected cars will have smart windshields that flash to the driver who is low on gas where the nearest gas station is located, along with an offer of a free coffee. Or a food order can be placed and picked up at a nearby fast food restaurant. Of course, exchanging intrusively annoying ads for intrusively annoying marketing messages may be no less irritating to consumers.
At the same time, native ads are becoming ever more craftily camouflaged. Gary Vaynerchuk writes, “Eventually ads won’t look like ads anymore; they will all be natively woven into the platforms, and we’ll consume them without even knowing it.”* The ANA estimated in mid-2016 that spending on native ads would grow from $13.9 billion in 2016 to $21 billion in 2018. “To a significant extent, native is the future of advertising for us,” New York Times CEO Mark Thompson says. “Adjacent advertising, which is more than a century old in newspapers and is when someone is looking at content and their eye can be drawn to an advertising message which is adjacent to the content, that is a model of limited value in the world we’re heading into. There is no sort of white space on a smartphone screen. And so our expectation is advertising will be part of the content stream people consume.” He predicts that both the interruptive ad and
the adjacent ad model will fade.
Although Thompson believes the Times has hired the journalistic storytellers and has advertiser relationships that allow it to build and sustain native advertising, critics raise red flags. They chorus: like advertorials, these can compromise the integrity of both the media and the brand. Another enormous impediment, says Rob Fishman of Niche, a software company that recruited influencers to market native ads and was sold to Twitter, is scale. Because native ads have to be shaped differently for each platform, targeted to various audience segments, are not as repeatable, and each has to endure a laborious storytelling process, he says, “Native is the enemy of scale. The monolithic ad model breaks down.”
As we’ve also seen, more and more, brands latch on to the idea of championing a larger movement or cause, extolling the good they do. This is not entirely new. Volvo in the 1980s chose not to compete with sleek car designs but to promote car safety; Ikea democratized stylish furniture for those with modest incomes; Patagonia flourished by conveying to consumers that it had a social purpose, using recycled bottles to make fleece jackets, employing solar power for their headquarters, donating a portion of their revenue to improve the environment. But the growing unpopularity of big business has prompted brands to dress differently. Every year Edelman issues what it calls its Trust Barometer, a global survey contrasting the level of trust toward business (and other institutions) of the “informed public” versus the “mass population.” In 2016, they reported a “significant divide,” with nearly two thirds of the “informed public” trusting business and other institutions and under half of the “mass population” sharing that trust, with the divide widening as the income gap spread. Brands that promote the good they do—as Unilever and P&G and Colgate did—seek to demonstrate that they value more than just making money. There’s a money reason for this as well. Vaseline or detergents or toothpaste are commodity products, with little to distinguish them.