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The iPad’s Threat to Advertising

I’m less interested in the Apple iPad and the spate of other interactive tablet devices about to flood into the consumer marketplace than in what they represent: another in a long line of attempts to semi-privatize the Internet.

Most “device revolutions” fail. For every iPod there are scores of Nomad Jukeboxes (of which I was a proud and happy early adopter). But this new revolution just might succeed, because it’s not about the devices; it’s about the consumer behavior impelling their invention. And it’s that real - or presumed - consumer behavior that’s generating a proliferation of not-so-secret gardens on the Web, many of them device-based - a phenomenon Forrester’s Josh Bernoff calls the “Splinternet.” Don’t look now, but your television, telephone, radio, TiVo, cable box, and even your desktop PC are or are about to become gated intranets - with significant implications for marketers, media and agencies.

The biggest issue is complexity - the bogeyman that has haunted marketing and advertising from the dawn of the ad-supported Web. Publishers are waxing hopeful that the iPad will resolve the challenges that have seen their businesses sundered; weeks before its launch, The New York Times’s David Carr even labeled Apple’s device a “savior,” arguing that it “represents an opportunity to renew the romance between printed material and consumer.” Yet it’s that very romantic impulse that should serve as warning that a pre-nup is needed, for without continuing, concerted, cross-industry commitment to managing transactional complexity in the marketing-media supply chain, the iPad and its ilk might only make publishers’ problems worse.

Portal Period

The semi-privatization of the Internet has been creeping up on us for a long time - almost as long as the Web has existed, in fact, and so-called portals attempted to become the controlling influence over consumers’ surfing habits. The portal period is generally considered a failure — sort of the Paleozoic Era of the Internet — but that’s unfair. Rather, the first decade-and-a-half of the Web’s gestation were largely about its proliferation and diversity, with consumers seeking navigation through an unfamiliar maze. That made search engines more valuable than portals.

But the walled gardens have always been there, and they’ve been growing in influence. What are Facebook and Twitter, after all, if not gated communities, built on Internet Protocol (IP), that live within the confines of the larger Web? While they’re generously forgiving fenced neighborhoods (anyone can move in, regardless of race, creed, color, or brand preference), they are walled gardens nonetheless. They have their own rules and regulations, codes of conduct, behaviors, mannerisms and lingo. To identify them with the vague techie term “platforms” obscures what they really are: private communities, like cooperative apartment buildings in the big city. They allow you access to the larger, opportunity-laden and riskier world outside, but you’ll always have your safe haven to return to.

Changing metaphors, if the Web is a “cesspool,” as Google CEO Eric Schmidt has famously put it, maybe these are country club swimming pools - bacteria-free places to swim with your own kind. But - and this is important - however removed these country clubs were from the cesspools, they were still part of the larger town. The waste water still flowed to the same place. The kids may have been richer and snootier than you, but they went to the local public school. The same has been true with the Web’s country club pools - until now.


Although the new IP-fueled devices promise to infuse interactivity into the last remaining analog nooks and crannies of our daily lives, the communities guarded by them threaten to upend that earlier, comfortable symbiosis. These devices and their proprietors have the ability to lock the community gates much tighter - or, at least, make the community so self-contained that any impulse to leave is restrained. They take the dogma that still guides so many digerati - “information wants to be free” - and reveal it as little more than a silly, thoughtless mantra.

Amazon’s World

While the iPhone, with its “apps economy,”, is the readiest example of these device-based walled gardens, Amazon’s Kindle may be a better one. The iPhone, after all, still hints at the larger world - and the larger World Wide Web; the iPad, which some first-day critics labeled “just a big iPod Touch,” is even more directly a creature of the Web. The Kindle, although IP-based, is utterly removed from it. Indeed, Amazon’s walled garden for literati is more akin to a company town, with everything from access to product offerings to pricing tightly managed. Even the famously controlling Apple was moved to promote its relative benevolence to the media industry, noting that the iPad will offer book publishers and readers a choice of two price points, in contrast to the (lower) one required in Kindletown.

In fact, Apple has been a paragon of openness, compared with such other walled gardens as Sony’s Playstation and Microsoft’s xBox. True, the music industry has complained bitterly about how Apple’s pricing policy for music and forced unbundling upset the financial requirements of the major recording companies. But at the same time, I can get virtually any type of music - regardless of codec, seller, or price - onto my iPod. (To this day, I have vastly more tunes there acquired from eMusic than from the Apple Store.)

More and more, “degree of openness” is looking to be a - perhaps the - central strategic differentiator among the different walled gardens of the Web. My favorite new gated community - Netflix Streaming - is fairly closed. Although it’s accessible through numerous network devices (it comes through brilliantly on my TiVo HD), its offerings are solely those Netflix makes available - one reason I believe Netflix will become a financing powerhouse in Hollywood and among independent producers before too long.

Another favorite of mine, Boxee (which I access on my 46”-inch Samsung through the ATVFlash package of Apple TV hacks), is reasonably open. It offers widgets for scores of online video purveyors, and looks like it wants to be a remote control and organizing tool for as much digital video content as exists. (Boxee’s ongoing tussle with Hulu is evidence of the “openness” contests beginning to shake up the digital video marketplace.)

Open TV

Boxee, which has announced imminent plans to release a proprietary set-top box, may even be setting itself up in direct opposition to the television set manufacturers that are bringing to market network-connected HDTV’s with apps built directly into the screens, in what look to be totally closed systems. This is an issue I expect Boxee CEO Avner Ronen will address in his keynote presentation next month at the IAB Annual Leadership Meeting.

“Degree of openness” is, as I suggested, a strategic decision companies will have to make. There’s no morality attached to it, the information-wants-to-be-free crowd notwithstanding. Some companies will thrive by remaining as porous as possible, while others will succeed by locking their gates. Consider Citigroup analyst Mark Mahaney’s recent research note on Netflix:

We believe that NFLX is benefiting from a materially improved all-in product offering with a) improved DVD-By-Mail delivery service, b) expanded Streaming selection (17,000+ titles), and c) materially improved user interfaces via gaming devices (xBox, PS3) and Web-integrated CE devices and TVs. The ongoing shuttering of DVD rental stores is also helping. And the end result is higher customer satisfaction (reduced churn) and deeper competitive moats. Add all this to a increasingly efficient biz model (rising Gross Margins), and you’ve got an Internet Core Holding.

“Deeper competitive moats” are something that, inevitably, marketers, advertisers and media will need to learn to cross. The iPad won’t necessarily get them to the other side. Far from being their savior, it could turn out to be a version of Charon, ferrying them across the River Styx to Hades.

Seamless Scale

I’m not even thinking about the obvious calculations - such as, how strictly will Apple set the terms and conditions, including pricing and customer-data control, for publishers seeking to sell their goods onto the iPad? A much more serious question is this: How fragmented will the advertising supply chain become? In deeply practical terms, if you work in advertising,your future depends on how companies like Apple intend to answer that question.

Put simply, a company’s opportunity to create, sell and use advertising effectively and profitably will depend on its ability to deliver it seamlessly across multiple devices. Fostering seamless delivery across multiple sites has been the rationale underlying the IAB since our founding 15 years ago. Yet as successful as we’ve been in standardizing advertising unit formats, measurement guidelines, work-flow processes, and the like, other central standards have proved elusive. For example, the creative agencies on the IAB Agency Advisory Board have said categorically that their single greatest obstacle to advertising effectiveness and growth is their inability to deliver the same rich-media ads to tens of millions of households across multiple sites because, as they put it, “the rich media toolkit differs too much from site to site.”

The proliferation of device-based walled gardens risks making our complex supply chain even more fragmented and complicated than it’s been. As Forrester’s Bernoff wrote, “Web marketing has grown since 1995, based on the idea that everything is connected. Click-throughs, ad networks, analytics, search-engine optimization — it all works because the Web is standardized. Google works because the Web is standardized. Not any more. Each new device has its own ad networks, format, and technology.” The Apple iPad’s lack of Adobe Flash - a core component of much interactive display advertising - only serves to underscore how splintered the advertising economy could become.

But I disagree with Bernoff’s conclusion about the Splinternet. Don’t “try to unify things again,” he says. “The shattering cannot be undone.”

Supply Chain Detente

It must be, though, if ad-supported media are to survive. This prompts two suggestions:

  • Device manufacturers and the proprietors of other walled gardens should work collaboratively to adopt consistent standards to allow the advertising and marketing economies to flourish. Beat your brains out competitively, but don’t subvert the advertising economy. Join the IAB and contribute to supply chain detente.
  • To the degree that the walled gardens create impediments to scale, publishers need to find other sources of revenue. Media companies must redouble their efforts to add marketing services to their sets of offerings.

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Will Congress Break Internet Advertising?

(This article was published earlier today in The Hill.)

The U.S. Congress – the place where former Alaska Senator Ted Stevens once declared the World Wide Web
“a series of tubes” – is not known for technological erudition, so it has wisely kept its hands off the Internet, the greatest economy-boosting innovation of our lives. “The last thing we need,” Rep. Cliff Stearns astutely observed just last week, “is a Government takeover of the Internet.”

I wish he’d tell that to Rep. Rick Boucher – his would-be partner on a still-unseen bill that promises to erode the burgeoning field of e-commerce, harm ad-supported news and entertainment media, and destroy the tens of thousands of small businesses in all 50 states that have come to depend on interactive technologies for marketing, retailing, and customer connectivity.

Writing last Tuesday in The Hill, Mr. Boucher declared his intent to introduce legislation to provide “some baseline protections in the online space” aimed at “protecting consumer privacy.” But within this seemingly laudable proclamation lies either a misunderstanding of how interactive media actually work – or an active desire to hinder the medium’s growth, and jeopardize the 3.1 million jobs and 2.1 percent of U.S. GDP that depend on it.

Advertising is the engine of the consumer economy, and fundamentally the only way American shoppers can compare prices, discover products, and learn about new stores and sales in their neighborhood – and the sole way businesses can get this information to them. Yet the Congressman wants to legislate its elimination. “If someone does not want a website he visits to use information it collects to deliver ads to him,” he writes, “he should be able to opt out of that use.” Worse yet, Rep. Boucher says “if a website wants to provide information to an unrelated third party, it should procure that Internet user’s affirmative opt-in consent.”

But the Internet is built on information – most of it managed by “third parties.” Indeed, about 90 percent of online display advertising is delivered by third-party ad-serving companies. Third-party management of the information units called “cookies” is what limits the volume of irrelevant advertising a consumer receives online. Rep. Boucher might as well title his bill “The Spam Preservation Act of 2010.”

But Rep. Boucher (shown left) isn’t putting only Internet infrastructure at risk. His most disturbing proposal is to place the burden for consumer privacy protections on individual Web sites ­- on the local newspaper’s dot-com affiliate, the cable network’s online feed, and the solo blogger alike. His legislation would force all publishers to implement cumbersome and expensive means to stop ad-distribution to any consumer who demands it, and shatter the systems that enable publishers to provide advertisers reliable measures of their circulation and advertising delivery – the currency that enables publishers to get paid for their work.

Why does Rep. Boucher want to imprison the Internet economy? He says his proposal will “encourage greater levels of general Internet usage and e-commerce.” But government intervention hardly seems necessary, given the enormous growth both have seen. A recent University of Southern California study found that in 2008, the average American spent 17 hours per week online, up from 15.3 hours in 2007 and only 9.4 hours in 2001. What were they doing? Among other things, they were shopping. Online retail sales during the recession-soaked 2009 holiday season increased 5 percent from 2008, with consumers spending $27 billion more than last year.

Everyone in this diverse, mushrooming industry would agree with Rep. Boucher that risks to data security and identity theft must be dealt with forcefully. But to conflate these legitimate dangers with the broader, fuzzier notion of “consumer privacy” is misguided and ultimately more dangerous than the original threat.

Our industry takes consumer privacy very seriously; after all, without the consumer - and consumer trust - there is no internet economy. This is why industry has moved aggressively to provide greater protections. In July, a coalition of five major trade associations, representing thousands of advertisers, marketers and publishers, released comprehensive principles for industry self-regulation, which would create strong enforcement of consumer privacy protections under the auspices of the Better Business Bureau. These principles embrace and expand on many of the concerns raised by consumer groups and by the Federal Trade Commission (whose officials have publically praised the coalition’s achievements).

This increasingly vigorous system of self-regulation and education is working. Even the Center for Democracy and Technology, a consumer advocacy group, in a tally of thousands of complaints filed with states attorneys general over Internet-related abuses in 2006-07, found only one case relating to privacy – a case already covered by existing law.

Rep. Boucher should take the advice of his putative co-author, Congressman Stearns. The Florida Republican says government regulatory “interference should be undertaken only where there is weighty and extensive evidence of abuse.” We could not agree more.

 




blog-header-rr.gif When Sir Martin Sorrell, Executive Chairman of the WPP Group and for two decades arguably the most powerful individual in advertising, appeared on The Charlie Rose Show last May, the conversation was more remarkable for what he didn’t say than for what he did say.

He spoke of the “significant shift to digital” spending among his clients, noting that 25% of the global marketing services group’s revenues now derive from interactivities. He said “the importance of technology in our business has mushroomed,” and spoke at length about Google, and about his own acquisition of the “remarkably successful” online advertising network 24/7 Real Media, and of TNS Millward Brown, his data, measurement, and analytics unit.

But not once did he mention his ownership of two of the greatest brand names in advertising, companies whose hostile acquisitions 20+ years ago put Sir Martin on the world map: Ogilvy and J. Walter Thompson. Although he nodded in the direction of “the great idea” - ad agencies’ value proposition for the better part of 60 years — he also gave it the back of his hand. “People in the advertising business, in the traditional media advertising business, would say the message determines the medium,” Mr. Sorrell said. “I would say that has totally changed.”

But of course, it has not totally changed. Rather, it’s the ground on which one of the greatest battles in both business history and social history is being fought. The question at the heart of it, although never purely articulated, is likely to determine the fortunes of every company that sells goods or services to consumers or customers.

The issue is this: Is marketing a strategic resource or a procured commodity?

If you listen closely, you’ll discern that this question is tearing apart the entire marketing-media ecosystem, with combatants staking out positions on either side of an increasingly great divide. On one side, people are speaking the language of efficiency: of online networks, demand-side exchanges, real-time bidding, inventory and impressions, buying agencies and procurement offices, of driving the marginal cost of production and distribution of billions of commodity products called banners, spots, and pages as close to zero as they can. On the other side of this gap are people speaking the language of growth: of brand affinity, premium price realization, consumer intimacy, dialogue, social media and the social graph, and of the insights that can generate consumer satisfaction and new revenue streams.

At times, the fissure seems akin to a civil war, with brother fighting brother over unconsidered ideologies. Holding company owners are battling their own agencies. Brand makers’ Chief Marketing Officers are fighting their companies’ Chief Financial Officers. Measurement companies are measuring the wrong things, incurring the ire of marketers and media alike. Advertising pricing systems in place for generations are coming under fire. Publishers’ sales forces are trying to keep up with the mixed messages.

Meanwhile, the people who really matter - the Chief Executive Officers at consumer marketers - are just beginning to wake from their inattention to render a verdict on where their funds will flow. I’m hoping this analysis - admittedly quite long, and reeking of history - will help.

Marketers and Citizens

Strategic resource or procured commodity? The question is of vital importance now because the investments marketers are making, on their own or with the guidance of agency and media partners, is influencing the way they conduct their business. And because their business involves advertising, the fuel that has powered the news and entertainment industries for more than a century, marketers’ decisions dramatically affect how citizens perceive the world around them.

The most prominent example of this disjuncture’s impact, of course, is the distress in the newspaper industry. Having opted at the dawn of the interactive era to distribute their online editions for free in order to build the mass audiences desirable to large brand advertisers, the newspapers (which had been losing readers for decades) found after a burst of new attention that they had forged a marketplace accustomed to accessing news at no charge. When oversupply of ad inventory - an inevitability, because the marginal cost of manufacturing that ad inventory is near-zero — started pressing their online pricing downward, they did not have this vital secondary revenue source, paid subscriptions, to fall back on.

As former Wall Street Journal Chairman and CEO Peter R. Kann wrote in that paper recently, the business model of newspapers’ free online editions “does not begin to cover the cost of significant news reporting.”

“So the online editions with growing audiences - largely cannibalized from print audiences - rely on the poor print editions for almost all the news they give away,” Mr. Kann continued. “Sadly, there is less and less of that, and the ultimate loser, of course, is the public.”

Another, more recent example of the commodity-vs.-resource confusion is the effort by many of the large ad-agency media-buying groups to disenfranchise branded publishers by launching their own “demand-side platforms” - essentially, stock exchanges for the trading of online advertising inventory. In recent months, WPP launched the B3 network, whose goal is to “basically create custom audience networks for advertisers,” WPP Vice President Brian Lesser told Advertising Age. Publicis, the French marketing services conglomerate, is introducing a similar trading platform in its Vivaki Nerve Center unit. Havas, another French holding company, is starting a trading unit called Adnetik. MDC Partners, a Canadian agency holding company, has opened Varick Media Management, which its president has described as a “media hedge fund.”

Ostensibly, the purpose of the trading platforms is to provide data that will help agencies “optimize” advertising for their clients - “optimize” being the catch-all jargon these days that covers everything from providing insights on consumer behavior to finding ad placements that generate more demonstrable returns.

But the real purpose - and the reason publishers are so concerned - is that the agencies plan to use the publishers’ ad inventory to identify likely target consumers, and with that specific data captured, attempt to find those same consumers on less expensive “long tail” Web sites that are in the agencies’ proprietary networks, a technique known as “retargeting.” As Vivaki President Curt Hecht told Ad Age, “In our first phase, we are moving clients into the audience space at scale and around inventory where they will feel comfortable with their brands. In the second phase, we’ll start to grow our reach.”

Or as Adnetik Managing Director Nathan Woodman more bluntly told an Advertising Week audience at a session on demand-side platforms sponsored by ContextWeb, “You have to value the media and you have to value the audience - and do them independently. We hope to do that in a way that guarantees for our advertisers a buying efficiency: they will never pay more for an ad than it is worth.”

The ordeal of the newspaper industry and the opportunism of the agencies would seem to have little in common. But both derive from the same intrinsic belief: that marketing, necessarily realized through media channels of various sorts, is essentially an undifferentiated good - a basic thing, a mere mote, that can be mined, refined, bought, sold, traded, and exchanged. Whether it’s called “ads” or “impressions” or “inventory,” marketing, in this view, is nothing more than a pure commodity, no different than crude oil, natural gas, or bituminous coal.

It’s this point of view, driven by media agencies, many technology companies, and accepted by many publishers themselves, that underlies much of the tension in the advertising industry today. Agencies profess to have little choice but to consider themselves commodity processors. “When you are on a fixed-commission model, which is typically the way the media business works, you’re ability to test is totally constrained because there’s certain things that might not work initially and you can’t run those because they won’t perform usually,” said Matt Greitzer, a vice president of Razorfish, the digital agency recently acquired by Publicis, at the ContextWeb event.

Adnetik’s Mr. Woodman was even more direct. “A typical agency model is fee-based or hours- based; the incentive is to consolidate — the only way the agency makes money is by putting less people against the task at hand,” he said. “So we are in a situation where the staff is completely over-worked and you cannot do these innovative many things because, in essence, the agency doesn’t have the bandwidth to do so.”

Spots and Dots

For the agency business, this assumption - that an ad agency’s job is to process “spots and dots” the way a pit broker processes stock trades, rather than to drive the client’s growth through innovation — actually represents a return to its roots… and a reversal of agencies’ prevailing wisdom for the last 60 years.

The first advertising agents of note - notably the New Yorker George Rowell — began as media resellers, purchasing newspaper space in bulk and retailing it at a profit to local merchants and patent-medicine barkers. Soon, the brokerage model became dominant, with advertising agents eschewing the own-and-resell strategy in favor of the less risky middleman approach, in which they earned commissions on sales from the papers and magazines for the ad space they sold on the periodicals’ behalf. The first two ad agencies of note, J. Walter Thompson and N. W. Ayer, were built on this foundation - although Ayer’s innovation was to take the fee from the client rather than the media.

Services, notably copywriting, consumer research, and media research, emerged gradually; Rowell published the American Newspaper Directory - the first syndicated research in advertising history - in 1869, and Ayer hired its first full-time writer in 1892. Importantly, though, all revenues came from commissions on media; the additional services, provided gratis, served only to protect the fat margins agencies earned from media buying, which were the source of agency profits. Why? As I’ve written before, under a commission system, each insertion of an advertisement is incrementally more profitable than the last insertion. Treat ads as unvarying commodities, and agency margins can skyrocket.

The conflicts of interest inherent in this procurement-dominated industry were apparent early in advertising’s evolution. In one of the first industry exposes I have found - a 1930 book titled Our Master’s Voice - Advertising, a disgruntled ex-copywriter named James Rorty decried the deceit he saw in this system:

The advertising agency is thus in the somewhat ambiguous position of being responsible to the advertiser whom he is serving but being paid by the advertising, publishing, or other advertising medium, his commission being based on the volume of the advertiser’s expenditure. Objection to this commission system of agency compensation has been chronic for years… But the commission method of compensation has persisted and is a factor in the endless chain of selling that links the whole advertising apparatus.

How lucrative was this “endless chain of selling” for the agency business? Many years ago, I sat down with Harry Paster, the late, great, longtime executive vice president of the American Association of Advertising Agencies, and he gave me the basic tutorial on agency economics: 50% payroll; 6-8% rent; 10-20% overhead; 22-34% profit margins.

“That’s it,” Harry told me. “That’s the whole thing.”

Moreover, he added, “It gets easier as you get bigger.”

The best evidence of that was the growth of the Ted Bates Worldwide agency, as engineered by the Madison Avenue legend Rosser Reeves. To clients, and in his 1961 best-seller Reality in Advertising, Reeves, a copywriter by background, argued that for an advertising campaign to be successful, it was best for it to say one thing, in exactly the same way, ideally forever. He called this unvarying underpinning a “unique selling proposition,” or U.S.P. He defined the U.S.P. as “getting a message into the heads of most people at the lowest possible cost.”

Reeves’s argument was simple: Unless a product becomes outmoded, a great campaign will not wear itself out. He counseled his clients to seek vast reach for their ads, saying, “If 90 percent do not remember it, the story is certainly not worn out.” Thus early television was blanketed by such Bates campaigns as “Wonder Bread helps build strong bodies 12 ways” and “M&M’s melts in your mouth, not in your hands.” Notably, the U.S.P. was meant to apply not only to an ad campaign’s mission, but to the specific advertisements themselves. As he related proudly to the author Martin Mayer, he was once entertaining a client on his yacht, when the marketer idly inquired what the hundred people who worked on his account did. Reeves answered: “They keep you from changing your advertising.” The tactic was certainly successful: Reeves publicly boasted how one client spent $86,400,000 over the course of 10 years “on one piece of my copy.”

That unchanging copy - commodity advertising in its purest form - made Reeves (pictured left) and his acolytes fabulously wealthy. When Reeves’s successor as chairman and CEO of Bates, Robert Jacoby, sold the agency to Saatchi & Saatchi in 1986, he personally pocketed $110 million - more than 20% of the total sale price.

But there had always been an undercurrent of discontent in the agency business - a minority understanding that there was a better way to serve clients and consumers together. James Rorty gave voice to this in 1930. Having gone independent with the slogan “The Less Advertising the Better,” he pursued clients with an argument that sounds, 80 years later, astonishingly like those offered by many in our ecosystem today. Here is his pitch, aimed at a fictional industrialist he named a Mr. Hoffschnagel:

Mr. Hoffschnagel, you and I are practical men. I don’t need to tell you that advertising is not an end in itself. Neither is selling. The end, Mr. Hoffschnagel, the true objective of the manufacturer and dispenser of products and services, should be the efficient and economical delivery to the consumer of precisely what the consumer wants and needs: what the consumer needs to buy, I repeat, not what the manufacturer needs to sell him. In any functional relationship between producer and consumer, advertising and sales expenditures are just so much frictional loss; in the ideal setup, which of course we can’t even approximate under present conditions, released buying energy would be substituted entirely for the selling energy which you now spend breaking down ‘sales resistance.’ My task, therefore, is to redefine and reinterpret your relationship with your customers; not to pile up sales and advertising expenses… but to cut them. What do your customers want from you? Service! What do you want to give them? Service! Not advertising - the less advertising the better - that’s just so much friction and loss. But service! The end, Mr. Hoffschnagel, is service!

It is a wildly contemporary argument: Advertising is a service that in turn enables marketers to provide services to their customers - in contemporary parlance, a solution. Advertising agents, agencies, and by extension media, Rorty was the first to argue, should become solutions providers.

Cost-Saving Creativity

The next to take up the call, to claim that the Emperors of Commoditization like Rosser Reeves had no clothes, were advertising’s creative revolutionaries of the 1950’s and 1960’s.

Fed by stories of bell-bottomed copywriters, pot-smoking account executives, and art directors threatening to jump out windows if their campaigns weren’t approved, advertising’s “Creative Revolution” has come down to us as the unbridling of a Dionysian impulse in the agency business. But it was actually an evocation of the discontent true business strategists and service providers felt toward forebears whom they believed had sold clients a bill of goods. Their only weapon at the time was creativity, but creativity had a pure logic underlying it: the logic of efficiency, born of effectiveness.

“Properly practiced, creativity must result in greater sales more economically achieved,” the Marat of the Creative Revolution, Bill Bernbach, said. “Properly practiced, creativity can lift your claims out of the swamp of sameness and make them accepted, believed, persuasive, urgent.”

His fellow revolutionary leader, David Ogilvy, also saw that creativity was a strategic resource that agencies had a duty to apply to campaigns. Taking a swipe at Rosser Reeves, his one-time brother-in-law, Ogilvy (who took inspiration from direct marketing, and saw no contradiction whatsoever between “brand image advertising” and “advertising that sells”) proclaimed it was “brand personality,” and not “any trivial product difference,” that drew consumers to products. He and his fellow revolutionaries were steadfast in affirming that creativity was a service that rendered advertising more effective, thus saving their clients money.

The creative revolutionaries knew exactly what they were doing, and felt morally and professionally committed to it, even if it entailed some sacrifice. “Bufferin and Anacin, the Ajax tornado, were repeated and repeated and repeated; the Volkswagen campaign was not,” Bob Levenson, Doyle Dane’s longtime creative chief, the leader of its flagship Volkswagen account, and today an advisor to the television show Mad Men, told me in 1992. “I mean, we did a lot of print advertising, far more than television, and very rarely did an ad run twice. It was a different game. We did 12 ads a year, one a month. That was how the work requisitions came in. And occasionally you’d repeat an ad, but it was the great exception. It was not like pound-it-in. It was much easier to do it Rosser Reeve’s way, and it was much more profitable.”

The premise - that creativity is a customer service that builds value for a marketer - was explained to me years ago by Jeremy Bullmore (pictured right), once the head of J. Walter Thompson’s U.K. operations, today a non-executive director of the WPP Group. When I asked him why the Creative Revolution swept the ad industry and trounced the prevailing commodity strategy, he pulled from his bookshelf The Act of Creation by the essayist and critic Arthur Koestler. In it, Koestler argued that “emphasis and implication,” while complementary literary techniques, affect readers differently - an argument that applies equally in marketing, Mr. Bullmore said. Emphasis - Reeves’ U.S.P. - “bullies the audience into acceptance,” he said, quoting Koestler, while implication, Doyle Dane Bernbach’s favored approach, “entices it into mental collaboration.”

It’s hard to overstate how controversial the Creative Revolution was in marketing. No less an eminence than the pollster George Gallup attacked it, calling brand image advertising a “passing fad.” But by the late 60’s, the strategic resource called creativity was well on its way toward winning the battle of Madison Avenue, confirmation coming in 1966, when Doyle Dane won the $8.5 million Mobil Oil account from the Ted Bates agency. By the 1980’s, when I began covering the advertising industry for The New York Times, it was taken for granted that creativity was the natural ground on which the battle for advertising supremacy should be fought.

“If you look at advertising history, most of the shops that are the big guys today started up as small shops in the 40’s and 50’s, where the owners of the agency were also the business strategists and the copywriters,” David E. R. Dangoor, then the head of marketing at Philip Morris U.S.A., told me in 1991. “That gave birth to new ideas and a lot of gutsy marketing moves.”

In other words, by the 1980’s, Advertising’s Long War seemed to be over. After a half-century during which the procured-commodity suppliers were dominant, the strategic resource providers, following a two-decade battle, had won the day.

Or so we thought.

Looking Like Hucksters

In reality, the war was continuing inside client companies themselves, and for good reason: one of the largest line items on many consumer-facing companies’ P&L accounts is advertising, and for the most part that has meant media - the channel through which marketing strategy was realized.

Clients paid little notice to advertising costs as long as the economy was growing, which it did for several decades in the United States after the close of World War II. But the oil shocks and stagflation of the 1970’s gave rise to a new discipline in business, and as the 80’s rolled in, so did management consultants, procurement specialists, stringent cost controls, and continual re-engineering.

It was only a matter of time before these new facts of industrial life caught up with marketing departments — and in 1986, they did. Bates Chairman Bob Jacoby’s $110 million windfall from the sale of his agency to the Saatchis changed client-agency relationships forever, by forcing marketers to confront the staggering profit margins their agencies were earning from their advertising spend. “We may stand today looking more like hucksters than when Frederic Wakeman wrote the book more than 25 years ago,” American Association of Advertising Agencies President Len Matthews lamented at the time.

He was right. Client companies immediately began pushing down agency compensation. They started hiring professional search consultants, whose tasks included not only help with agency selection, but compensation negotiations. Agencies recoiled - Matthews publicly called one prominent search consultant, an ex-agency executive named Alvin A. Achenbaum, a “quisling,” after Norway’s traitorous World War II leader - but to no avail. Agency margins began collapsing, from 20%+ on average to 10% and less.

The agencies had no choice but to unbundle - to separate the media-planning and -buying functions from the strategic and creative functions. Unbundling served two purposes: It enabled the holding companies, which increasingly dominated the industry, to consolidate their media functions, and gain both scale efficiencies and purchasing clout with media companies, which themselves were aggregating into global giants like Time Warner, News Corp., and Viacom. Unbundling also allowed the agency holding companies to start charging, on a menu-like basis, for the many offerings the so-called “full service agencies” had long given away for free, such as creative, research, public relations, and product development.

Unbundling, however, didn’t necessarily help the agency business. Holding company operating margins, even factoring out the effects of the recession, still hover in the 10-13% range, far below the historic norms that prompted advertising’s “megamerger” boom of the 1980’s. With the recession, the picture is far more grim. The WPP Group reported operating margins of 7.5% for the first half of 2009, down from 13% during the same period the previous year. Interpublic’s operating margins were 1.7% for first nine months of 2009, down from 5.1% in 2008.

Marketing Drives Growth

But a funny thing happened on the way to this resurgent procurement -driven view of marketing: interactivity.

I first saw the marked change in the tone and content of marketers’ interests in 2004-2005, when I was part of the team at the consulting firm Booz & Co. that helped the Association of National Advertisers grapple with the evolution of marketing capabilities and marketing organizations. The ANA’s members - Chief Marketing Officers and other senior marketing executives - felt they were drifting away from the center of influence in their companies, a feeling underscored by the shrinking tenure of CMOs. Was that true, the association wanted to know, and if so, what did marketers need to do to regain their centrality?

The first thing we discovered was that the perception was false. Overwhelmingly, across all industry segments, marketers and non-marketers alike agreed that marketing had grown strikingly in importance during the early 2000’s. The prevailing trends affecting all parts of business - growing capital and labor mobility, frictionless global communications, the increased speed of technology transfer - were hastening the perception and the reality of commoditization across all product and service categories. Chief executives needed marketing to help them overcome the commodity challenge, and add value to their companies’ goods. And some marketers were fulfilling the promise. These “super-CMO’s,” as we dubbed them, were serving as the lead growth drivers in their firms.

Unfortunately, they were still a minority. Most CMO’s served as what we called “Chief Advertising Officers.” Their expertise was in shepherding third-party agencies toward the creation of discrete sets of pre-formatted advertising products - print ads, TV commercials, press releases, and the like. It was the gap between the CEO’s desire and this reality that accounted for CMOs’ short tenure: They wanted someone who could own the company’s growth agenda, but too often they ended up with an advanced advertising manager. In other words, too many CMOs were managing commodity processing, in an environment where commodity processing could no longer assure their firms’ need to generate growth and deliver shareholder value.

As we probed further, we discovered that advanced marketers were seeing a way out of the commodity trap: The same communications technologies that were creating it.

“What’s changed is that the engagement level we can have with our consumers is just so much higher,” Jim Stengel, then the Global Marketing Officer of Procter & Gamble, told our Booz-ANA team in 2006. “We can have a two-way dialogue, a relationship. That means we will need more brand-enhancing, consumer-enhancing dialogue in more of our businesses. It’s a different skill set—with different capabilities—than we required in the past.”

John D. Hayes, the Chief Marketing Officer of the American Express Co., affirmed the shift, in words that should have put the nail in the coffin of the “procured commodity” school of advertising management. “The world is in the middle of an ongoing conversation,” Mr. Hayes said, in interviews for the book we published, CMO Thought Leaders: The Rise of the Strategic Marketer. “A marketer’s challenge and job is to enter that conversation. And when you do join in, you had better be prepared to add value. If your attitude is, ‘We’re going to pound away with this many GRPs talking about our new product,’ all you’re doing is interrupting the conversation. People don’t like that.”

This, of course, is the language of strategic resource - language that has grown louder and more insistent in the years since that first study. In 2007, the ANA and Booz joined with the IAB and the American Association of Advertising Agencies for a new study, Marketing-Media Ecosystem 2010. In it, we asked marketers what their greatest need was. Eighty-two percent gave the same answer: consumer insights, by which they meant actionable marketplace understanding with which they could grow their businesses and build new businesses. How would they gain these insights? Page after page of our study saw the same answer - in Booz’s words, they required “marketing as conversation.”

“The marketing function, equipped to broadcast brand messages to consumers, has now become a center for dialogue, geared to gleaning what consumers want, and when and where they want it,” the Booz partner who led our research, Christopher Vollmer (pictured right), wrote in the journal strategy+business. “Advertising has evolved from an interruption—grabbing attention for a product or brand—into an experience, an application, a service that the consumer actually wants. This new marketing model doesn’t shout; it listens and learns. And relevance, interactivity, and accountability are its essential ingredients.”

This, indeed, has made for a profound gulf between marketing laggards and marketing leaders, as determined by their investments and their returns. Eight-eight percent of leaders in our study had “open channels for communicating with consumers,” while only 63% of laggards did. Another 88% of the leaders were participating in or leveraging online communities, vs. 59% of the laggards. Of the leaders, 72% had formal processes for integrating consumer intelligence into products; fewer than half the laggards did.

Marketer-Publisher Teaming

We also found a greater willingness by clients to work directly with leading publishers to realize their need for more intimate consumer relationships.

“If I were an agency, I would be really worried about being disintermediated,” Becky Saeger, CMO of Charles Schwab, said at the ANA’s 2008 “Masters of Marketing” conference, reinforcing the study’s findings. “More and more the agencies are almost in the way sometimes.” Schwab, she said, had begun doing “strategic briefings for media companies so we know that they understand what we’re trying to do with our brand so we get higher quality input and not have to rely on our media agency to be in the middle all the time.”

Sitting on the same panel, Gary Elliott, vice president for corporate marketing at Hewlett-Packard, echoed her sentiments. “We’re going to pilot a number of different relationships where we go direct with media companies,” he said.

It’s unsurprising that clients would start rebelling against their agencies’ procured-commodity approach to marketing: Many marketers, particularly packaged-goods companies, have confronted similar commoditizing pressures from their retail customers, and realized that their only way out was to become more expert at providing services to these customers.

The two-decade-long “private label revolution” has pressured brand marketers’ prices down. In the early going, they responded by offering slotting allowances - essentially, fees for shelf space - to the retailers. CPG makers then went on cost-cutting binges, in order to be able to permanently bring their pricing in line with private-label merchandise, a strategy known as “everyday low pricing,” or EDLP. But as the retail trade has grown even more concentrated and powerful, competing solely on price is a strategy that, literally, offers diminishing returns to packaged goods companies. CPG manufacturers have had to compete in other ways. They have had to learn to be more sophisticated about their trade promotions strategies, offering retailers only deals that can provide both parties an acceptable return. They have created special box sizes, customized store displays, advanced consumer research and analysis, even brands unique to individual retailers - assistance unthinkable in the era of one-size-fits-all mass manufacturing. They have, in short, added to their commodity production processes an overlay of solutions - services that help their customers create value for their customers.

No wonder these marketers expect the same solutions-focus from their agencies and media. The circle is either vicious - endless rounds of cost-cutting until everyone gets zero value and zero return - or virtuous: Continual innovation by which agencies and media help marketers shape practical or emotional utility for consumers.

Hence, the paradox we face in today’s marketing and media industries. There is not a creative agency or an interactive publisher I know that doesn’t say that among its greatest challenges is the demand from clients for marketing programs that are innovative, customized, or unique. Marketers are looking to get closer to a specific publisher’s specific audience. They want entertainment and engagement, special to them, that only this media company’s assets can provide. They desire insights about product features and benefits that only this section of that social network can offer.

So why, then, do we spend so much effort developing new platforms for blasting impressions by the billions across the entire face of a shapeless Internet? Why, 150 years after George Rowell launched the first one, do we consume ourselves with introducing new media brokerage services capable of shaving arbitraged micro-pennies from the trading of direct-response data? Why are so much energy and investment focused on the development of “digital media trading solutions,” “algorithmic audience targeting platforms,” “networks of networks,” and other mechanisms designed to improve cost efficiencies on the distribution side of spots and dots?

Even the smartest people in our industry mistake the challenge, and the opportunity. Consider this recent essay by Eric Picard, a noted advertising technology advisor to the advertising platform engineering team at Microsoft. “I envision a world where media planners will spend the bulk of their time defining the goals of the advertiser, and translating those goals into complex instructions that can be interpreted by software,” Mr. Picard writes. “The ad platforms of the future will match these instructions against available ad inventory that is enriched with targeting attributes based on user behavior and content associations — and then optimized in an automated fashion by very smart systems.”

But guess what? That is not the world CMO’s are envisioning. Listen to what Lucas Watson, Global Team Leader for Digital Business Strategy at Procter & Gamble, told attendees at the IAB MIXX Conference this past September about “what we have been learning in the interactive space.”

“As we spent all this time worrying about ad frequency and ad formats and where we’re placing, contextual targeting and behavioral targeting - it’s all important — but we’re finding that it’s creative quality that is driving 70% of the business impact we’re seeing in our return on advertising,” Mr. Watson said. “Good ideas are driving more business than bad ideas. It’s not rocket science. But I think there was some doubt about whether this counted in the interactive space. We think it does.”

Or consider what Hewlett-Packard’s Michael Mendenhall said to his fellow CMO’s at the ANA’s annual conference in October 2008. “Web 2.0, which enables multiparty, multimedia, simultaneous, digital conversations, has completely upended the traditional relationship between companies and consumers,” Mr. Mendenhall affirmed. “The power of a single individual to shape perceptions on a massive scale is a dramatic and fundamental shift. It is no longer just about where businesses put their ad spend. A comprehensive digital media strategy across all operations of a company is required. As marketers, we need to ask ourselves, ‘How can we drive efficiency and stakeholder engagement in this interactive environment…while still managing the reputational risk to our brands?’”

Don’t get me wrong. Not for a minute am I arguing that improving commodity processing isn’t vitally important to marketers, media, and agencies. Quite the opposite: If you’re going to live in WalMart’s World - and pretty soon, every industry confronts its own version of WalMart’s World - you have to become superior at efficiency. Network-like aggregating mechanisms, trading platforms, and process automation devices are both important and necessary. To support my bona fides, I point that back in April, 2000, I was the first person to raise in the pages of Advertising Age the viability of online exchanges for the trading of media space and time.

What I’m arguing is that these mechanisms address only half the challenge. As HP’s Mr. Mendenhall says, marketing’s future is about efficiency and stakeholder engagement. That means agencies and media alike must focus on the development of strategic resources that can drive growth - their customers’, and their own.

Building Brands Online

The need to bridge this terrible gap - to get Silicon Valley talking to New York and Chicago, encourage CPG companies’ Global Media Officers to speak with their Chief Marketing Officers, and perhaps spur media agencies to rebundle with creative agencies - was perhaps the most important finding in the newly-released IAB-Bain & Co. study Building Brands Online: An Interactive Advertising Action Plan.

This groundbreaking research, which involved a survey of 700 marketing executives, found clearly that brand marketers have three powerful needs; that to fulfill these needs, media companies require three sets of capabilities; and that to organize profitably to apply these capabilities, media companies must have three distinct service models.

The three marketer needs have conventional names - brand awareness, brand engagement, and transactions. But as the Bain/IAB team reviewed the survey results and the qualitative responses from marketers, these vague terms took on new meaning.

“Engagement,” we came to understand, really means the application of a distinct set of assets and capabilities to enhance the affinity consumers feel for a company, brand, product, or service, sufficient to maintain that marketer’s premium price realization versus like competitors through time. The concept of “transactions” also took on new depth. Typically defined by direct marketers as the successful consummation of a sale at today’s offer through the current control device, transactions in the interactive space can cover anything from total number of clicks, to the data derived from clicks, to the downloading of collateral material, to the delivery of a consumer by a brand marketer to a retail partner.

With these learnings, we saw that, by applying old processes, metrics, and compensation models in this newly complex yet opportunity-rich space, media, agencies, and marketing departments had underserved the needs of the enterprise.

For example, publishers had over time increasingly conflated brand awareness advertising with transaction-focused advertising, in large part because both are reach-based functions. But by allowing marketers and agencies to pay for awareness campaigns on the basis of clickthroughs or other transaction metrics, publishers perversely found themselves giving away brand lift as a free added value on top of low-priced direct-response campaigns. Moreover, because brand awareness builds through time, by demanding clickthroughs as a metric for such campaigns, agencies were developing media plans aimed at the wrong audiences, in the wrong media contexts.

Similarly, while transactions can be employed to understand engagement, they are not synonymous with it. To take one simple example, reading about multiple friends’ brand preferences on a social network can create powerful affinities between a consumer and those brands - but they cannot be measured by transactions (because there aren’t any) and they cannot be charted on a conventional media plan.

The mismatch between metrics and brand marketers’ objectives was among the strongest conclusions of the study. Clients, Bain found, wanted classic measurements designed to show growth in consumers’ knowledge of and feelings for the brand, including awareness, purchase intent, and likelihood to recommend. But media and agencies, misunderstanding what marketers meant by “accountability,” kept trying to push digital metrics, especially those drawn from the arsenal of direct response, such as clickthroughs, unique visitors, viewthroughs, and time spent on page.

“The clear message coming out of interviews [with marketers] was ‘we don’t have any of the right metrics,’” John Frelinghuysen, Media Practice Leader at Bain and the lead partner on our study, told Advertising Age. “And the sellers are saying ‘we have loads of metrics.’ The people who are making these decisions of how much to allocate to online and how to think about that in relation to TV buys are people who’ve grown up with TV. … They think online has digital-specialty metrics and they want metrics that speak a common language with the offline world.”

Bain recommends that publishers develop “triple play” service offerings to fulfill marketers’ three needs, and gain expertise in both lower-cost, more automated delivery of reach advertising, and in the high-value services (customized creative, category-specific marketing strategy, consumer analysis, cross-platform marketing, and customized targeting among them) that will enhance engagement - and command high prices from clients.

“Agencies also have to think about how to take advantage of the medium,” my colleague Sherrill Mane, IAB’s Senior Vice President for Industry Services, told Ad Age. “If an agency isn’t able to produce the creative that captivates and does more for brands, then media partners will.”

Cross-Platform Expertise

And they are. The IAB-Bain study highlighted the cross-platform expertise developed by ESPN; the marketing services capabilities brought to the market through six agency acquisitions by Meredith; the customized creativity offered by The New York Times, MTV Networks, Yahoo, and the Wall Street Journal; the unique creative partnerships forged by Sprint and Microsoft; the tiered price segments offered by Martha Stewart Living Omnimedia, Forbes, and Time Inc.; and the database marketing and lead generation services built by IDG - among the many “triple play” offerings developed by publishers to realize their obligation to marketers. These and other case studies and best practices form the heart of the IAB’s soon-to-launch “Shifting Share Campaign” to drive more brand marketer attention and spend to the growth opportunities offered by digital media. (If you’re a brand marketer and want to learn more, please email me!)

Creating these high-value customer services represents a departure for publishers. For generations, great media companies have certainly focused on service. They filled informational needs (“all the news that’s fit to print”), practical needs (“access to tools”), emotional needs (“fun, fearless, female”), or social needs (“must-see TV!”). But whatever its mission, the service was specifically consumer-directed.

On the advertising side of their businesses, though, media companies historically offered up variations of processed commodities. They sold time or space, in mass bundles. They differentiated those bundles by the most elemental of demographics: A male or female skew, 18-49 age group, A and B counties. They’d compete on their audiences’ propensity to buy certain categories of goods. But the mechanics of selling and the product they sold otherwise differed little from place to place - hence the commodity characterization of advertising sales as offering “spots and dots.”

In other words, for the most part media companies considered their customer value proposition to be synonymous with their consumer value proposition: They created fabulous, alluring, differentiated content that successfully and repeatedly assembled an audience - and then they allowed third parties called agencies to place ads (with few variations in length or dimension) in front of them. They took no responsibility for those ads’ strategic underpinning, creation or performance.

Those days are over. IDG CEO Bob Carrigan, a one-time magazine-centered publisher whose company today has a menu of some 20 services, including but certainly not limited to advertising, that it provides to clients, even put a headline over the strategic shift taking place at media companies. It was the title of his keynote presentation at the IAB Annual Leadership Meeting last year in Orlando, Florida: “If You Just Publish, You’ll Perish.”

Agencies Must Reinvent

Agencies, too, must reinvent their business. The unbundling of the procurement function from the strategic function clearly ill-served their clients - as the clients themselves are saying ever more loudly. Straight rebundling may not be the answer - but neither is a tighter and narrower focus on the cost-squeezing side of their own business. After all, the same technologies that enable agencies to develop their own networks and trading platforms can be even more readily insourced by large consumer-product makers and service providers, which have a 30-year head-start integrating sophisticated IT solutions into their catalog of capabilities.

The great creative agencies that surfaced during the 1980’s and 1990’s seem to understand the power of service best. I’ve been struck by the degree to which agencies like Goodby Silverstein, Hill Holliday, the Martin Agency, McKinney, Crispin Porter Bogusky, along with agencies cut from the same creative cloth, such as R/GA, Droga5, Barbarian Group, and Campfire, seem to be dominating both awards shows and client interest. Having shaken off their shellshock from the first wave of digital disruption, they are strutting their abilities in best-of-breed creative, and in some cases developing their own version of “triple play” services, gaining expertise especially in transaction facilitation. This isn’t really surprising: These agencies’ greatest proficiency is in ideas - and for marketers, that remains the most important service of all.

And to be fair, there are those on the agency side that are talking the language of service outside of the creative arena. WPP’s consolidation of more than 20 individual companies into the Kantar Group, which the holding company describes as “one of the world’s largest insight, information and consultancy networks,” is certainly an example.

Even a few that are launching new commodity-procurement operations are careful to note that they are not meant to subsume their devotion to service. For example, Quentin George, Chief Digital Officer of Mediabrands, the media-buying unit of the Interpublic Group of Companies, and the acting CEO of its recently launched online ad network Cadreon, is adamant that arbitrage is not part of its model - that indeed, risk arbitrage is antithetical to the agency’s mandate, which is to render service to clients.

“We think there’s a lot of good margin to make on the services side,” Mr. George (pictured left) said recently. “Certain clients have become a lot more willing to talk about things like licensing fees and data fees. And we would much rather make money on those elements, than pure arbitrage where we put [agency] capital at risk - buying inventory and then selling it off over time.”

Calling up the decades-old argument that agencies sitting on both the buy and sell sides of media risk irreconcilable tensions with their clients, Mr. George added, “There is the potential for conflict if you put agency capital at risk to acquire inventory, and then sit on that, and then dish it out to clients over time.”

“The number one job we have,” he said, “is to really apply our client’s money where it creates the biggest benefit. And in return, you can extract money for services.”

Real Business Opportunity

Mr. George has that part exactly right - as did ex-copywriter James Rorty 80 years ago, and as do the publishers that are adding value-additive services to their mix of offerings. While commodity procurement will forever remain a vital part of the marketing industry, the real business opportunities reside in strategic resourcing.

Because if business history is any guide, the procured-commodity experts will get it right. The “digital media trading solutions, “algorithmic audience targeting platforms,” “networks of networks,” and “demand-side exchanges” will make a difference.

But when technology succeeds in driving the cost of reaching the perfect audience down to zero, what are you left with?

Everyone with the same low costs, the same perfect efficiency, for doing the same exact thing … and nothing unique to say or do or offer to consumers.

And that’s when the real competition begins.

Reposted from www.randallrothenberg.com

blog-header-rr.gifAn Open letter from Randall Rothenberg to FTC Chairman Jon Leibowitz, calls on FTC to rescind Blogger rules.


Jon Leibowitz, Chairman

Federal Trade Commission

600 Pennsylvania Avenue, NW

Washington, DC 20580

Dear Mr. Chairman:

So there I was last Saturday, about to send out on my Twitter feed — which automatically updates my Facebook page and links to my personal blog — a photograph of this wonderful baked halibut dish I’d just made as a surprise for my wife. I was in the middle of typing a rave review of the recipe, which I’d pulled from my favorite cookbook, Delicioso! The Regional Cooking of Spain by Penelope Casas. But before I could press the “post” button, I stopped and canceled the whole thing.

I remembered that the book was a freebie, sent to me by an editor at the Alfred A. Knopf publishing house 13 years ago. And I didn’t want you guys to haul me into court and fine me for violating the rules you’ve just promulgated to muzzle social media.

I know what you’re thinking – I’m just confused. But so are the 22 million bloggers currently collecting audiences in the United States and the nearly 140 million Americans registering news and opinions through social media channels like Facebook, MySpace, Friendster, and Twitter. The source of the confusion: The new set of Guides Concerning the Use of Endorsements and Testimonials in Advertising, issued on October 5 by the Federal Trade Commission that you chair.

As you’re undoubtedly aware, the revised Guides, an update of principles the Commission originally established in 1980, have generated a firestorm of controversy within the ad-supported interactive media industry. Of particular concern are footnotes, asides, and elaborations in the Guides – as well as reported commentary by Commission staff – which indicate that opinions published by individuals have less protection than speech promulgated by large corporations; that “traditional” distribution channels deserve more protection than innovative online channels; and, finally, that the Internet, the cheapest, freest, most accessible communications medium ever invented, should have less freedom than other media.

Different Disclosure Requirements

It’s the Commission’s own words that have sewn this controversy and confusion. On pages 47 and 48 of the 81-page Guides, your staff

…acknowledges that bloggers may be subject to different disclosure requirements than reviewers in traditional media. In general, under usual circumstances, the Commission does not consider reviews published in traditional media (i.e., where a newspaper, magazine, or television or radio station with independent editorial responsibility assigns an employee to review various products or services as part of his or her official duties, and then publishes those reviews) to be sponsored advertising messages. Accordingly, such reviews are not “endorsements” within the meaning of the Guides…

In contrast, if a blogger’s statement on his personal blog or elsewhere (e.g., the site of an online retailer of electronic products) qualifies as an “endorsement” – i.e., as a sponsored message – due to the blogger’s relationship with the advertiser or the value of the merchandise he has received and has been asked to review by that advertiser, knowing these facts might affect the weight consumers give to his review.

With all due respect, Mr. Chairman: Huh? Does the FTC really intend to probe America’s opinion-mongering apparatus this closely? Do you have a team of Freuds and Jungs able to examine “the weight” consumers give such opinion – and the way they weigh that weight?

Naturally, this expedition from Oceania – that’s the place Big Brother ruled – should be worrisome to all Americans, and to all viewers, readers, listeners, users, and providers of any communications medium. But for the 400 members of the Interactive Advertising Bureau, most of which are small and medium-sized enterprises struggling to build their businesses in the face of the worst decline in marketing spending since the 1930’s, the implication that online social media represent a separate class of communications channels with less Constitutional protection than corporate-owned newspapers, radio stations, or cable television networks is of particularly grave concern.

They – and we — are not arguing that bloggers and social media be treated differently than incumbent media. After all, most newspapers, magazines, radio stations and television networks, in recognition that Americans are embracing new forms of social communications, have established their own blogs, boards, Facebook pages, Twitter feeds, and the like. Rather, we’re saying the new conversational media should be accorded the same rights and freedoms as other communications channels.

Stop Deceptive Advertising

All of us would agree that false and deceptive advertising should be stopped, and penalized when it slips through and is caught. We agree that paid testimonials and endorsements should be labeled. But in taking business ethics and attempting to give it the force of law, the Commission is stretching the definition of remuneration to ludicrous lengths. More frightening – certainly to the 22,000 womens-issue bloggers” on BlogHer, the 218 sports-fan facilitators on SB Nation, and the 302 people Tweeting to me daily – is that the FTC’s new Guides open the door to extremely selective pursuit and prosecution of those least able to defend themselves against government’s hammer: the solo entrepreneurs and opinionated individuals who are most vital to the functioning of our democracy and economy.

That fear, I fear, is supported by the Commission’s own words. For example, in an interview with the blog edrants.com, FTC Assistant Director of Advertising Practices Richard Cleland took decades of common practice in offline media — specifically the acceptance by reviewers of free books from publishers — and said that bloggers engaging in the same activities could be subject to prosecution. “The primary situation is where there’s a link to the sponsoring seller and the blogger,” said Mr. Cleland. The repeated supply of free books could constitute “compensation,” thus triggering an FTC review and, possibly, sanctions.

“You can return it,” Mr. Cleland said, when asked how a social mediator could avoid this fate. “You review it and return it. I’m not sure that type of situation would be compensation.” Otherwise, “if a blogger received enough books, he could open up a used bookstore.”

The ignorance of established offline media practices is more than mildly surprising. Take a walk through New York’s mecca of used books, The Strand, or the Portland emporium Powell’s, and you’ll find bin upon bin of “reviewers’ copies,” direct contravention of Mr. Cleland’s declaration that “most of the newspapers have very strict rules about that and on what happens to those products.” (My own shelf of review copies from my days as a journalist attest to how wrong he is.)

Shackle Online Media

But of greater concern is that the Commission is translating this ignorance into rules that would specifically shackle online media while exempting our offline cousins and competitors from equivalent constraint. Publish? You might perish: “Consumers who join word of mouth marketing programs that periodically provide them products to review publicly (as opposed to simply giving feedback to the advertiser) will also likely be viewed as giving sponsored messages.” Have a lot of Facebook friends? Better watch it, you dot-commie: “If that blogger frequently receives products from manufacturers because he or she is known to have wide readership within a particular demographic group that is the manufacturers’ target market, the blogger’s statements are likely to be deemed to be ‘endorsements.’”

Indeed, to copious industry protests that provision of free samples, tickets, and services to independent reviewers has been a staple of media since media began and shouldn’t be regulated more strictly online than off, the Commission simply disagreed and said it will “consider each use of these new media on a case-by-case basis for purposes of law enforcement.” So if Niero Gonzales fails to flash “freebie” across each review of a first-person shooter posted on his gamer site Destructoid.com, will he be dragged down to Pennsylvania Avenue for a civil investigation? If I blog on randallrothenberg.com about the dozens of free management books I receive each year from publishers, will I, John Wiley & Sons, or Harper Business be subject to a penalty? Again with all due respect, Mr. Chairman, the Commission’s Guides really provides no guidance at all.

You must know that, because in the days following the release of the revised Guides, the FTC has been furiously backtracking about their implications, in an apparent attempt to soothe the blogosphere. “We are not planning on investigating individual bloggers,” Mary Engle, the Commission’s Associate Director for Advertising Practices, told reporters this week. “We will be focusing any enforcements on advertisers, not on individual endorsers.”

But the Commission is being disingenuous. “The recent creation of consumer-generated media means that in many instances, endorsements are now disseminated by the endorser, rather than by the sponsoring advertiser,” the Guides state. “In these contexts, the Commission believes that the endorser is the party primarily responsible for disclosing material connections with the advertiser.

Individuals More Liable

In other words, the Guides DO allow you to pursue bloggers. They DO hold individuals more liable than larger corporations. They DO explicitly say online social media have less protection than offline corporate media. They DO obstruct online companies’ opportunities to drive cultural conversation more than offline companies’. They DO threaten with prosecution book publishers, movie producers, and other companies that supply products to individual social media conversationalists.

This confusion easily could have been avoided. The IAB and other industry organizations clearly identified the risks to free expression and provided the FTC significant, formal First Amendment guidance when you first mooted the new guidelines earlier this year. We offered to bring in bloggers, social media executives and others from among our membership and work with you to develop practical guidelines and self-regulatory mechanisms that would protect consumers from real harm, while assuring that independent opinion in digital media isn’t stifled.

But Commission staff did not follow up with us on our offer, held no public hearings on the proposed Guides, and ultimately dismissed our concerns. Instead, they took the perverse - and Constitutionally dubious - step of saying that individuals writing in social media bear greater liability than do those writing for offline, one-way media.


Mr. Chairman, these are the types of vital regulatory issues that, if decided without due care and reasoned judgment, will impair the continued growth of news and content in the online space. I urge the Commission to retract the current set of Guides and to commence a fair and open process in order to develop a roadmap by which responsible online actors can engage with consumers and continue to provide their invaluable content and services.

Regards,

Randall Rothenberg

President and Chief Executive Officer

Interactive Advertising Bureau



blog-header-rr.gif Thanks to Advertising Age, I’ve had a chance recently to reflect on my favorite advertising and marketing books of all time. Alas, the book I believe is the best did not make the Top 10 list. It is Strategy in Advertising: Matching Media and Messages to Markets and Motivations by Leo Bogart.

First published in 1967, “Strategy in Advertising“:http://adage.com/columns/article?article_id=105066 remains the best single-volume work on the science of media mix modeling and allocation. That’s not surprising, because its author was a brilliant and widely respected social scientist, who for years served as the executive vice president of the Newspaper Advertising Bureau and the de facto dean of media researchers in the United States. Bogart (who died in 2005) was of that generation of sociologists who saw both the bad and the good that managed communications can do. Born in Poland, his observations as an American soldier in Europe at the end of World War II — his confrontation with the horrifying results of Nazi propaganda — prompted him to become a sociologist. Among his post-war projects was the research that underlay the desegregation of the U.S. armed forces.

I mention Bogart’s background and his grounding in science because the second page of his classic book on advertising strategy contains one of the most contrarian lines ever written by a scientist. “Advertisements,” he writes, “may be evaluated scientifically; they cannot be created scientifically.”

Leo Bogart no doubt would be amused that, some four decades after he penned his great book, we’re still fighting the old art vs. science war in advertising. But we are — and it’s a war worth ending, because it misses the point entirely.

Two weeks ago, I published a clog titled, “A Bigger Idea: A Manifesto on Interactive Advertising Creativity.” The observations and hypotheses — that our direct response heritage has hindered this medium’s hospitality to brand advertisers, that we must incentivize creative excellence, that we need to integrate technologists as full partners into creative teams — apparently have resonated.

Ah, hell — they became the talk of the clogosphere, and for that we’re extremely grateful. The French Revolution began in salons and coffee shops, so no reason the interactive creative revolution can’t begin here!

We furthered the cause subsequently at the IAB Annual Leadership Meeting in Orlando, FL — the Ecosystem 2.0 conference, as we call it — earlier this week. There, I disclosed that, for the first time, IAB will invite creative agencies into the interactive advertising format standardization process. We also announced the formation of IAB’s first Agency Advisory Board, with senior executive representatives from a dozen top creative, digital and media agencies, including:

  • Brad Brinegar, Chairman and CEO of McKinney, and Chair of the Agency Advisory Board
  • Tom Bedecarré, CEO, AKQA
  • Jeff Benjamin, Interactive Creative Director, Crispin Porter + Bogusky Advertising
  • Alan Cohen, CEO of OMD USA, OMD Los Angeles.
  • Colleen DeCourcy, Chief Digital Officer, TBWA Worldwide
  • Brian DiLorenzo, Director of Integrated Production and Executive Director of Content, BBDO
  • David Droga, Founder and Chairman, Droga5
  • Sarah Fay, CEO, Carat North America
  • Maria Luisa Francoli, Global CEO, MPG
  • Jean-Philippe Maheu, Chief Digital Officer, Ogilvy & Mather Worldwide
  • Benjamin Palmer, Co-Founder, CEO, Barbarian Group
  • Steve Wax, Partner and Chief Narratologist and Co-Founder, Campfire

But this is not a revolution against science, as some have characterized it. It’s a war against the mismanagement of marketing communications by people who don’t have the background or experience to help marketers use all the tools and services available to them to grow profitably. In that war, as IAB Chair Wenda Harris Millard put it so eloquently at our conference, both art and science have a place.

It’s important for all of us who would offer our services to marketers and consumers to know how to arrange the seats at this table.

A Great Debate

I’ve loved the debate generated by our rants, diatribes and importunings. My special favorites include the passionate back-and-forth instigated by Adweek’s Brian Morrissey on his @BMorrissey: thoughts on branding and advertising blog. Videoegg’s Troy Young did a funny, heartfelt, and wonderful analysis of the online creative crisis on his company’s blog. Silicon Alley Insider joined the fray with some terrific commentary and links.

But my favorite response was from Paul Seward, a senior interactive application engineer at the Martin Agency in Richmond, Virginia, and an inventor of the creative technology program at the VCU Brandcenter, one of the institutions that will save advertising — and make interactive media hospitable to it. The Martin Agency is part of that core class of ad agencies that are and will be at the forefront of the interactive creative revolution: Its people understand not only what builds businesses, but what motivates clients, creatives and consumers — and how those motivations must be aligned for advertising to succeed. The subject of my first “clog,” Martin and its longtime president and creative director, Mike Hughes, were among the first to break down the walls between their direct response division and their “brand advertising” division, setting the stage for the agency’s reinvention as a leader for the interactive era.

The Martin Agency and VCU Brandcenter are intertwined; Mr. Hughes is a founder and the chairman of school. So when one of his team wrote about the need to bring technology and creativity closer together, I listened. And what I heard from Paul Seward was a passion to lead a revolution that is grounded — as he is, personally — in both art and science. Here’s what he wrote me:

Mr. Rothenberg,

I am one of the original contributors that helped Rick Boyko, Bob Greenberg, and Nick Law create the Creative Technology curriculum for the VCU Brandcenter. Mark Avnet and I have been working together to craft the new track to make it become something very special. I am teaching my second semester of classes and I am completely blown away by what the students are coming up with. Their thinking is amazing. Thinking beyond the tactical execution with their ideas and developing platforms that are seated in the idea of the experience. It really is extraordinary!

I also work at The Martin Agency. Currently I am one of those guys that are “working in a different room” as George Lois once said. I am within the interactive department and currently act as a Information Architect, Producer, Programmer, System Administrator, Software Architect and sometimes even graphic designer. See, I am one of those graphic designers that saw the power of the Internet as a medium and left the practice to pursue programming in 1994. Prior to that I was a lead graphic designer of a national magazine and before that a graduate of VCU’s acclaimed Communications Arts and Design, Graphic Design school. But, as a programmer, I excelled very quickly. Going on to become a enterprise developer with the J2EE language. I then moved on to become a Software Project Manager/Architect. It was the advent of advertising starting to take the deep dive into technology that lured me back to my creative roots. At the Martin Agency, I get to experience the best of all of my worlds. I can intermingle my extensive technical experience with my creative side. It really is a unique marriage. But, it is this unique type of individuals that we are looking for at VCU’s Brandcenter. And I am happy to say, we have found students that fill this bill.

Like you, I believe that the Creative Technologist should have a seat at the creative table Throughout the complete ideation stage. But, I think there needs to be some level-setting done before that happens. First, I am not talking about these creative technologists as traditional strategist, programmers, information architects, or even digital designers. Mark Avnet and I believe that they are more closely defined as “experience managers”. They have a understanding of traditional branding and advertising. But, they also have a deep understanding of personal interaction. How the tribe interacts with each other and how a brand can quickly adapt its messaging in response to user actions and responses.

These new principles are easily defined by saying words like adaptive design, information design, data visualization, etc. But, look deeper at the core of what this new creative team member brings to the table. A deeps sense of how people interact with each other. Thinking of the brand as “within the community” (please do not confuse this with having a brand play within Facebook), talking, listening and reacting to the needs of its community. But, this thinking is what separates this type of individual from someone who may recommend the latest technological animation tactic. This kind of tactical ideation is not what a CT does. They understand what may be possible, but they think and concept in a much more generalized fashion.

Take Nike+, R/GA was able to take the idea of recording pedometer results and create a platform that allows many different forms of communication to flourish. A platform based on uniting “like minded” individuals within a experience brought to them by the brand. Allowing them to become apart of the brand and living within its experience. But, it is the value of this type of engagement that is so powerful. TV, online, events, OOH, all tactical executions that evolved easily from the initial platform idea. To me, that is what is so revolutionary about the Nike+ campaign. Not the piece of tech that goes in your shoe.

The industry is at a crossroad today. What we do in the next couple years is going to redefine our work and culture for the next 60 years. It really is an exciting time for us all.

Thanks, Paul Seward

I can’t be any more eloquent than Mr. Seward, but I can try to summarize his thinking: Whether their medium is the written word, the designed image, the produced event, or the software application — whether their grounding is in science or in art — great advertising people share a common trait: They know what moves people.

Or as the late, great advertising scientist Leo Bogart wrote 42 years ago: “The Great Idea in advertising is far more than the sum of the recognition scores, the ratings, and all other superficial indicators of its success; it is in the realm of myth, to which measurements cannot apply.”

Viva la Revolucion!

blog-header-rr.gif Quick — name four fantastic, emotionally resonant, culturally significant and successful interactive advertising campaigns from the past year.

Came up empty? That’s what I thought. Palo Alto, we’ve got a problem.

Actually, Palo Alto may be the problem. Fifteen years old, a vital component of the marketing landscape by any calculation, interactive advertising is still characterized in the public eye and practitioners’ minds by its technical sleight-of-hand instead of its narrative and emotive power. This has led our industry to a creative crisis that, if not resolved, will almost certainly impede our — and our customers’ — growth.

It’s time to engage marketers, agencies, and publishers in a public debate about creativity in interactive advertising. The IAB has set aside much of our February 22-24 Annual Leadership Conference in Orlando, Florida, for this discussion. But if you’ll indulge me, I’d like to launch the debate right here by naming names — the four enemies of online branding:

  • A direct-marketing culture and tradition that devalues creativity and its long-term effect on brands
  • An interactive agency business model that disincentivizes greatness and fails to penalize mediocrity
  • An unwillingness by mainstream agencies to integrate technologists as full partners in the advertising creative team
  • Media industry values and habits that malign and depreciate our own products, and by extension our customers’

The Banner Shibboleth

The issue of brand advertising and its future in interactive media is particularly prominent now, as the U.S. struggles through its worsening economic crisis. With much of marketing spend frozen, mainstream media suffering from significant advertising dropoffs, and interactive ad growth slowing, the blame game has become a desperate pastime in our industry, especially from premium publishers trying to maintain pricing on their display inventory.

The latest shibboleth is the online banner ad, whose formats IAB members first began standardizing more than a decade ago and subsequently realized in the “Universal Ad Package” in 2003. Industry chatter recently has begun to attribute pricing pressure to the mere existence of these standard ad units. New York Times “Bits Blog” columnist Saul Hansell this week related an encounter with MSNBC.com President Charlie Tillinghast, who told him that “that the standard sizes have allowed the advertising networks to turn display ads into commodities.”

“We made it possible for any Web site to run ads through the ad networks,” Mr. Tillinghast told Mr. Hansell. “That’s created an oversupply of space.”

On the one hand, the charge is literally true: Standardization of anything — the ASCII character-encoding scheme, the North American 15A/125V ungrounded electrical plug and socket, the IEEE/ANSI Performance Criteria for Alarming Personal Radiation Detectors for Homeland Security — turns it into a commodity, “an article of commerce or a product that can be used for commerce.” There are many types of commodities characterized by natural or artificial standards — coal, oil, currencies and, of course, pork bellies, to name a few.

On the other hand, the charge, in relation to advertising, is historically jejune. Blaming Internet banner standards for commoditization is no different than attributing television advertising pricing fluctuations to standardization of the 30-second spot, or faulting the magazine page for the pressures on magazine advertising.

Indeed, the accusation ignores the very reason IAB members — including such historic beneficiaries of advertising standards as The New York Times and CBS — developed the ad standards in the first place: to reduce the complexity and transaction costs associated with interactive advertising, and allow the medium to scale. “The Internet is taking an important step in its evolution as an ad medium by moving in this direction of standard ad sizes,” Richy Glassberg, then the Vice President and General Manager of Interactive Sales for Turner Broadcasting, said when the first IAB banner standards were introduced in 1996. “This will make it easier for agencies and advertisers to develop advertising and will further establish the Web as a viable mass medium.”

Endorsing those standards, Mike Donahue of the American Association of Advertising Agencies, said, “The proliferation of banners has created a massive problem for advertisers and their agencies, which sometimes have to create their ads in 50 or more sizes. These voluntary guidelines will greatly streamline the advertising production and placement process and contribute to the overall growth of Internet advertising.”
Supply vs. Demand

Mr. Tillinghast (who has built MSNBC.com into a national and global news powerhouse) is also wrong in attributing the “oversupply of space” to standardization. The disequilibrium in the supply and demand for advertising inventory has a more fundamental cause: technology itself. As I noted in my first presentation to the IAB Board of Directors, using research we conducted at the consulting firm Booz & Co. in the early 2000’s on behalf of the Association of National Advertisers and some media clients, it is now possible for a 14-year-old to create a global television network with the applications that come built into her laptop computer. That means that, for perhaps the first time in any industry, new product — in our case, content and advertising inventory — can be created and distributed seamlessly, without friction, and largely without marginal cost.

To prove the point, just look at another industry standard that’s helped a commodity proliferate in recent years: ICANN’s Web site naming conventions. Thanks to it (and that other contributing standard, Internet Protocol), there are now approximately 160 million Web sites in the world — some 1.2 million of which sell advertising.

This isn’t to deny that oversupply is a problem. It is. But short of a shutdown of the Internet itself — a ban against new domain names, an ICANN moratorium, or mass public revulsion against a medium that is now the world’s most popular — new supply will always be entering this marketplace.

Yet in the very notion of commoditization lies the salvation for interactive advertising. For as in all other commodity markets, the products can be shaped and modified in ways that add enormous value to them. Raw diamonds can be polished to perfection. Cotton balls can be woven into couture dresses. Pork bellies can be sauteed into haute cuisine.

And advertising inventory can be written, designed, and produced by immensely talented creative people into communications that drive the fortunes of great companies.

Direct Response Culture

Can be… But for the most part isn’t. Given the remarkable creative potential in interactivity, online media should present a cornucopia of fabulous, affecting and effective advertising. Take the great concepting and design that went into Doyle Dane’s “Think Small” ad for Volkswagen, spoon in the equivalently brilliant production simplicity of Chiat/Day’s “Human Cartoons” campaign for the Nynex Yellow Pages, throw in the remarkable production values that for two generations characterized BBDO’s work for Pepsi, sprinkle over it the captivating long copy Ogilvy wrote for Rolls-Royce — and then add the potential for mass viral video distribution, one-to-one validation, social media engagement, blog conversation, customization on premium news and entertainment sites, and segmented reach through online networks. The marketing mind boggles.

So with all that potential, why is that so few people can name even two great, recent interactive advertising campaigns — so few people in our own industry? (For those tempted to respond, “Hey, wait a minute, what about ‘Subservient Chicken?’”, I feel compelled to point out that this breakthrough effort by Crispin Porter Bogusky for Burger King is five years old.)

Culprit no. 1, I believe, is the direct-marketing culture that is part of interactive advertising’s DNA. Lord knows, we should and do revere direct response advertising and most of what it’s bequeathed to the interactive industry. From the DR industry we’ve derived our attention to accountability — an obligation honored only in the breach through the history of mainstream media and agencies. From direct marketing we have learned that data and its management are central to everything we do. Many of the growth areas for interactive publishers, including lead generation and customer relationship management, are based on direct marketing innovations.

But direct marketers are almost defiantly disinterested in the aesthetics of communications — and the long-term impact aesthetics has on brand value and company activities. Notwithstanding such legendary direct marketing efforts as American Express’s — where every element of the brand is supported through all channels, from main media to direct — even direct mailers will say that creativity, designed to build and reinforce such well-established, long-term brand-uplifting effects as “likeability,” is not native to the direct response business. Attention to beauty is more the exception than the rule in a marketing-services segment that prizes today’s response to today’s offer over long-term brand lift.

This isn’t a criticism, but a reflection of the way the marketing mix is supposed to work, and has worked for decades. When I first visited the fabled Publisher’s Clearing House in Port Washington, Long Island 20 years ago, I was shocked at the contrast between their clinical understanding of the “what” and their utter detachment from the “why.” PCH’s 12 writers and four art directors were involved continuously in developing new mailing “involvement devices” — pre-Internet instigators of what we today call “consumer engagement” — and, through rigorous testing, could tell down to fractions of a percentage point the lift to gross revenues each would provide.

But how such devices as the “television tag” and the “Jaguar stamp” worked to influence consumers, and what the implications were for the magazines that used PCH to boost subscriptions — that the direct marketers could not say.

“Don’t Know Why”

”If you use a manila envelope, people respond more than they do to a white envelope, but we don’t know why,” Lee Epstein, president of Mailmen Inc., a Long Island company that inserts materials in direct-mail envelopes, told me at the time. ”The postage-paid stamp in the upper-right-hand corner - someone once made a mistake and tilted it. It increased response, but we don’t know why.”

Almost everyone in magazine publishing can relate a horror story about how direct marketing’s ingrained disdain for beauty and branding sundered a property — how a circulation department for an elegant fashion or furnishings periodical, intent on meeting a mailing response target, flooded low-income neighborhoods with cheap come-ons, driving the publication’s demographics downward and turning off the very advertisers the magazine was supposed to attract. “Most direct-mail letters, they said, don’t use good writing; don’t worry if you split an infinitive,” Frank H. Johnson, a direct mail pioneer who began his career at Time Inc. in the 1930’s, once told me. “And you’re never supposed to be funny.”

Bill Jayme, one of the greatest direct mail writers of the past century, agreed. ”The general attitude in direct mail is to talk down, assume people are stupid and repeat everything,” he told me nearly 20 years ago. The late Mr. Jayme was a rare exception. “I haven’t had any qualms about using a word like ‘peregrinations.’ If the context is right, the reader’ll understand and will feel flattered.”

But this notion that your consumer was part of a community of interest with the brand marketer, not a “target” to turn into a “conquest” at any cost, was and is rare in direct marketing. The late, great magazine journalist Clay Felker once related to me the struggles he, Harold Hayes, and others charged with reinventing Esquire magazine in the early 1960’s had persuading the publication’s proprietors to abandon the “damn it letter” — the long-time direct mail control missive that opened with those words and chortled over pinup girls. However damaging this legacy of Esquire’s earlier girlie magazine days was to the rebranding effort the newcomers were charged with spearheading, the publisher was reluctant to change it, because it brought in subscribers. Mr. Felker succeeded in his effort only when he retained Mr. Jayme, who wrote an intelligent letter that finally outperformed the debilitating “damn it letter.”

Why Creativity Matters

Agency founder David Ogilvy revered direct marketing, yet also was the ad industry’s leading apostle of brand imagery. In his marvelous new biography of Ogilvy, The King of Madison Avenue, former Ogilvy & Mather Chairman and Chief Executive Kenneth Roman relates how, for years, Ogilvy (shown at left) struggled to reconcile these “two schools of advertising” that “were diametrically opposed to each other.”

By the time Ogilvy founded his agency in 1948, he had succeeded. As committed as he was to the principle that advertising must sell, Ogilvy also understood the risks posed by a fixation on immediacy and accountability — primarily the brand marketer’s loss of public esteem and the ability it bestowed to maintain pricing power. In remarks made 50 years ago that seem eerily prescient today, Ogilvy told the author Martin Mayer:

“Most brands that need help today were given sleazy, bargain-basement brand images in the thirties, when money was scarce and it was a great help to seem cheap. They’ve suffered from it. When I first came into this country Packard was one of the great quality cars. Then they began getting tough, going after the middle-priced market. What do you think they would give today to get back their old image?’

To marketers and others who complained that brand-image advertising “is unmeasurable, it’s all a lot of airy-fairy nonsense,” Ogilvy had a simple response: “Well, is it?”

Ogilvy was one of the last century’s great salesmen. In his book, Mr. Roman spins wonderful yarns about the hours “DO” spent as an apprentice chef in the kitchen of the Majestic Hotel, one of Paris’s best restaurants, and the years he spent peddling Aga cookers, a premium stove, door to door across Scotland, in the 1930’s. What Ogilvy learned from these experiences is that successful selling is at root about one thing: faith — your ability to provide to others a dream with infinite horizens. The exquisitely designed plate of cuisine classique — ah yes, you are living the good life! This remarkable stove — why, your home will be akin to the finest restaurant!

Creating Faith

In taking this lesson to his agency, Ogilvy also understood that creating faith in customers was not a distant exercise; he would not succeed solely by delivering creatively constructed messages across pages or airwaves to a faceless mass of consumers. There was always a more immediate, more present customer: the clients themselves.

This is perhaps the most important reason advertising creativity matters. It inspires the marketer. It encourages the sales force. It provides them, and all the other constituencies in and around the company and the brand, the faith that they will be able to sell the product in to the retailer, close the sales on the dealer’s lot, win new commissions, and better their own lives. Great advertising is their rallying cry, the flag they march under. The mouseclick must be matched by their heartbeat.

This is the reason no major new advertising campaign ever debuts de novo on broadcast network television, but rather is premiered at the franchisees’ convention, the national dealers’ conference, and the annual sales meeting. The campaign, the ads, are the gospels — the stories that excite and unite the tribes, that spur them to go out and do battle for a higher cause. Done right, an advertising campaign transforms the advertiser itself into an army of true believers. For how can you expect to win new converts, if you, yourself, are not a true believer?

The notion that a narrative could be used to drive people toward higher goals is as old as philosophy itself. As Socrates says in concluding the myth of the cave in Plato’s Republic: “Without having seen the Form of Good and having fixed his eye upon it, one will not be able to act wisely, either in public affairs or in private life.”

Jerry Della Femina described this cultural power — this corporate cultural power — of great advertising more profanely but no less profoundly in his famous book, From Those Wonderful Folks Who Brought You Pearl Harbor. “The client is standing up there waiting at the train station for the New Haven to take him into New York and he’s dying to be stopped by his buddies,” Mr. Della Femina wrote in his classic memoir. “He is dying for them to compliment him on his new campaign.”

“‘Boy, you’ve got a hell of an ad there.’ That’s what the client wants to hear.”

Missing Reputational Currency

The gap between the mouseclick and the heartbeat is nowhere more evident than in many of our digital advertising agencies. To illustrate, allow me to pose an admittedly trick question: What’s the biggest difference between a traditional creative agency and a new-age digital agency?

Answer: Traditional creative agencies are named after human beings. Digital agencies are named after inanimate objects or nonsense words.

Check out the winners of the 2008 IAB MIXX Awards — the industry’s premier showcase for creativity and effectiveness. Winner, Best in Show: Tequila. Winner, Brand Positioning: Digitas. Winner, In-Game Advertising: Jogo. Silver Award, Brand Positioning: Blockdot. Silver Award, Digital Video: Tribal DDB.

Look, we love these agencie. And to be fair to them, the depersonalization of advertising predated the digital revolution. But it’s a particular tragedy in the digital arena, because it has robbed the industry of its most potent fuel: reputation capital.

From their inception in the 19th Century, advertising agencies, like law and accounting firms, represented their origins and duties as client service businesses in their names. “N. W. Ayer & Son,” “Batten, Barton, Durstine & Osborne,” “Young & Rubicam” — all implied a sense of personal responsibility on the part of founders to their customers.

Not incidentally, they also conveyed a sense of opportunity to their ambitious employees. Advertising was always a low-barrier-to-entry business. If success depended solely on the ability “to render service and make money,” as Lord & Thomas leader Albert Lasker once put it, why, anyone could try it!

And they did — at no time more prolifically than during the Creative Revolution of the 1960’s. The concurrent post-war Baby Boom, suburbanization of America, and spread of network television put a special premium on quality advertising content; more products and more communications channels meant more ads, and more need to cut through the growing clutter to engage audiences. Writers and graphic designers determined that they, too, might have value — perhaps more value than account handlers. So writers like David Ogilvy and Bill Bernbach (shown right) and graphic designers like George Lois took the plunge and founded agencies.

Cultural recognition and financial growth rapidly came their way, emboldening other creatives to believe they could trade the personal reputations they had won using little more than their pens and palettes into successful agencies. The “swinging agencies,” Jerry Della Femina called them: Wells, Rich, Greene; Delehanty, Kurnit & Geller; Smith/Greenland; Daniel & Charles. Many were spawned directly from the creative department of Doyle Dane Bernbach. Between January and July 1969 alone, more than 100 ad shops were launched, most in New York, all of them gassed up with reputational capital.

Agency Road Map

The calculation was clear and direct: Get known as the creator of great, successful campaigns, and you, too, could start your own business, bring some clients along, and make an awful lot of money on little capital investment. And to this day, that remains the road map for success in the agency business. If you want to understand why the Cannes Lions International Advertising Festival has become the largest destination gathering of advertising professionals in the world — “more than 10,000 delegates from 85 countries… inspired by the 28,000 pieces of work on display,” as its Web site says — that’s all you need to know.

And that’s the reason to mourn, and perhaps war against, the depersonalization of the agency business. Sure, there are several valid explanations for it: to scale, advertising had to globalize and industrialize; and increasingly, one could maintain that successful client service is about the team, not the individual.

But if, as I have argued, great advertising not only stimulates consumers but galvanizes that team to build and sustain strong companies and brands, then we must recognize that its creation requires both collaboration and individual achievement. Advertising, in this regard, is no different from any other form of communication that seeks after broad, material, cultural impact — no different than film, or theatre, or journalism: If stardom is not rewarded, there is little incentive toward superiority. Worse, perhaps, if mediocrity is not penalized, there is little deterrence to decline.

There’s good news lurking beneath the surface. The rising category of digital advertising award winners — agencies making the hearts beat and the mice click — are the great creative agencies of the past two decades: Hill Holliday, Goodby Silverstein, McKinney, BBDO, TBWA Chiat/Day — companies whose names (or, well, acronyms) have meaning.

But we must unleash and laud by name the next generation of stars. Interactive advertising, I suspect, will only take its place in the cathedrals of cultural significance when we start to recognize and reward the creative individuals who make greatness happen.

Creative Technologists Arise

Those individuals carry at least one non-traditional title. To the advertising creative partnership that traditionally has teamed a copywriter and an art director, a third member must be added: the creative technologist.

The creative technologist is only now beginning to gain public recognition. Google the term and you’ll find hundreds of help wanted ads at agencies and publishers. But I’d never seen the phrase in the mainstream media until two weeks ago, when New York Magazine writer Emily Nussbaum published an exciting piece about the transformation of uptown rival The New York Times. “There is something exhilarating about watching web innovation finally explode at The Times,” she wrote. “… Everyone seems to have a job title like ‘creative technologist,’ giving the entire floor a mad-scientist air.”

Yet these are not mad scientists; they are essential partners in modern media, central to the craft of communication today. Creative technologists, says Mark Avnet, professor and head of a training program for them at Virginia Commonwealth University’s VCU Brandcenter, are “fluent and confident in using media technologies appropriately in the service of branding, advertising, marketing and persuasion.” VCU’s program — the world’s first at an accredited university, launched only six months ago — aims to train “leaders and members in ‘new’ creative teams, as interactive designers, creative directors, producers, directors of interactive media, members of account teams, as entrepreneurs and in emerging creative technology positions in forward-thinking agencies.”

Among contemporary agency leaders, the only one who speaks publicly about the indispensability of creative technologists is RG/A Chairman, CEO and Global Chief Creative Officer Bob Greenberg.

“There are critical creative needs that didn’t exist in the old advertising,” says Mr. Greenberg, who counts 130 technologists in his New York office. “Advertising is no longer just about the display ad or the TV commercial or the banner; it’s about creating meaningful tools and architecting user experiences. Our technology group, they can keep up to speed technically with the top people at HP or IBM. But they also understand how to work with others to create an application that will lead to community.”

Mr. Greenberg stresses that calling the creative technologist the “third member” of the creative team is, at best, metaphorical. There are several new skill sets creative agencies today must possess to attract, engage, and influence consumers — Flash video development, software design, information architecture, animation, CRM, iPhone app design, and ActionScript development among them — and no one individual will have expertise in all. The point is that the men and women with these skills must be treated as full partners in the campaign development process, contributors to “the Big Idea,” not as executional afterthoughts buried in the basement.

The Bigger Idea

This evolution of the creative partnership is as transformational a moment as was the invention of the copywriter-art director partnership exactly 60 years ago, at fledgling shop Doyle Dane Bernbach. Influenced by his former colleague, the legendary graphic designer Paul Rand, agency founder Bill Bernbach realized that effective persuasion required the full integration of words and images — and of their expert creators.

“Up until that time in agencies, the art director was a layout man,” George Lois, a Bernbach acolyte, once told me. “He may have been a very, very good layout man. He may have been a gifted layout man. But he was not a thinker. He was a layout man.” So secondary were they that they worked in different rooms, often on different floors, than the copywriters, who referred to these layout men as “wrists.”

“Before Bernbach, there were slogans, great lines, and they got laid out,” Mr. Lois said. “Well, Bernbach didn’t believe in catchy lines as much as he believed in attacking the heart and soul. So Bernbach gave the art director power.”

Significantly, this occurred at the dawn of the last information revolution — the introduction of broadcast network television, which also occurred exactly 60 years ago. The advent of the interactive revolution now heralds the empowerment of the creative technologist. Clearly, their ascent adds complexity to advertising agency and media management: Communications leaders will have to learn how to foster collaboration among larger and more diverse teams — in addition to motivating their individual stars, as I’ve suggested is necessary. But agencies and media have no choice but to add them to their capability mix.

“You can’t have an art director and a writer who go off for two weeks in a room and try to come up with a Big Idea that is rendered into a print ad or billboard, and the interactive accompaniment to that is just matched luggage,” Mr. Greenberg says. “You have to get to a bigger idea. You now may need eight people around the table.”

All That Remains

If you’ve had the good fortune to spend time in RG/A’s Bauhaus-style headquarters on Manhattan’s West Side, or a block away in the offices of New York Times Digital, or across the country at Google’s campus in Mountainview, or a little bit north of that, in the AKQA agency’s HQ across from AT&T Park in San Francisco, or across the country again, in the converted tobacco factory that houses the transforming McKinney agency in Durham, NC, you’ll be struck immediately by all this creative ferment — this reinvention of the way we communicate the world and persuade consumers.

Yet that is not the conversation that dominates our ecosystem today.

Instead, we’re engaged in a war over “pork bellies.” We’re publicly complaining, on stages and in pages, about commoditization. We talk incessantly about “remnant inventory.”

I’ve got to tell you, every time I hear an interactive publishing executive use the term “remnant,” I want to take a scissors, shred the dress, and stab the salesman. How dare you, I think, deprecate your property in that way? You’re trying to sell couture at Bergdorf’s, yet you’re using the language of Seventh Avenue garmentos to describe it?

With all due respect to the IAB’s members — who are, after all, my bosses — and to the media agencies (who are among our most important customers), I’d like to suggest that our seller-buyer-driven culture is devaluing not just the pricing but the potency of our medium. We must stop acting as if we’re selling schmattes, and start acting like the makers of magic that the best of us are — and always have been.

As I’ve written and any economist would affirm, supply-demand disequilibrium, exacerbated by a recession-driven flight of marketing budgets from above-the-line functions to promotional availabilities, is the root cause of today’s pricing pressures in media. Yes, it’s bad, and yes, it will get worse before it gets better. But it’s no reason for discussions of commoditization to dominate our business — now, or at any time. Remnants may clothe you when you are needy, but they will not make you feel grand.

Interactive Advertising Grows

And that, fundamentally, is the business we are in — of providing men and women the information they need and they entertainment they want to think and feel and act in different and better ways. And therein lies the power of our medium, its unprecedented power, for it allows people to find the information, to talk back to the news, to create and share the entertainment, to shape the event. And that is the force of advertising in this medium — not the fact that in some places, at some times, it can be purchased in the bargain basement.

That is the reason why, while other media platforms contract, interactive advertising is still growing: especially during a recession, not all time and space are created equal.

That’s especially true within our industry. Some interactive publishing companies are growing bigger and better than others. There are many reasons for their relative success: the addition of sophisticated yield management capabilities, the creation of customer-facing services businesses, the development of consumer insights capabilities, the training of a more consultative sales force, the highlighting and fulfilling of creative opportunities for clients, the implementation of sophisticated market- and product-segmentation strategies, the undeniable attractiveness of quality content to men and women hungering for information and entertainment.

But these publishers’ achievements and their bright prospects all derive from their willingness to ask — and answer with actions — one fundamental question: How do I add value to my consumers’ experiences and my customers’ businesses?

In our obsession with immediacy and accountability, we have overlooked the more subtle yet more powerful ways that companies, brands, and fortunes are built through time. Our IAB Annual Leadership Meeting, Ecosystem 2.0, themed “Brands Battle Back,” will launch this needed conversation.

For digital publishers and agencies, here’s what I hope this conversation leads you to do:

  1. Motivate greatness among your best creative people, for their work inspires consumers and customers alike.
  2. Collaborate — creative agencies and publishers — with each other and within yourselves to develop outstanding advertising and communications products.
  3. Assemble writers, designers, and technologists into teams that can engage the intellect and emotions of audiences and individuals across all channels, toward the goal of creating enduring brands.
  4. Prove to your customers that causing the heart to beat quick is at least as important as making the mouse click.

Finally, and politely, let’s ask the sellers and the planners, the publishers and the senior buyers, to continue their price negotiations — but quietly, in the back room, away from the customers crowding our front counters and our home pages.

Let’s return to a time when advertising and media conversation was owned by the creatives, the editors, and the impresarios — when it was dominated by debates about the craft of persuasion, about what moves people. After all, isn’t that the reason we’re in this business?

blog-header-rr.gif Anyone who still thinks that contextually targeted online video doesn’t have impact ought to have been in my shoes last week. My appearance on “3 Minute Ad Age” beneath the headline “IAB CEO Rants Against Audience-Measurement Complexity,” tore up my email box as well as the advertising-obsessed quadrants of the blogosphere.

While enormous credit goes to Ad Age editor Hoag Levin — who knew the hot word “rant” would be a magnet to blogging, traffic-driving controversialists — I believe my generally mild charge struck a chord because it reflected the daily reality of marketers, agencies, and publishers who are weighed under by the numbing complexity of selling, planning, buying, placing, and measuring advertising.

You can watch the video, but here, in essence, is what I said:

Measurement is not just a science; it is also an essential business process. Yes, measurement aims to uncover truths about the brands, products, services, and consumers with stakes in an advertising campaign, but those truths are worthless unless they improve — unless they add value to — the companies and customers on either end of the chain.

Our problem is that, right now, the marketing-media ecosystem has been so consumed by the equivalent of an angels-dancing-on-the-head-of-a-pin debate, that we make the transacting of advertising business more difficult than it needs to be. Measurement, as I told the crowd at the IAB’s Audience Measurement Leadership Forum last week, isn’t the cause of this complexity crisis, but it’s certainly a major ingredient.

Physician, Heal Thyself

An apt analogy is modern medical science. Advances in molecular biology, diagnostics, neuroscience, and technology and instrumentation have revolutionized our understanding of how the body works and malfunctions. But were it not linked to the practice of medicine in ways that allowed physicians to cure peoples’ ills, we’d consider it a failure.

That’s unfortunately where we are with so much of modern media measurement: The science is diverging from — even divorcing itself from — the practice. We can measure so many things, in so many ways, that the actual customer — the marketer — is tuning out. The McKinsey & Co. study I referenced last week, “How Poor Metrics Undermine Digital Marketing,” is sad proof of this undeniable reality. “Companies have failed to crack the code for measurement,” the consulting firm concluded from its survey of 340 marketers around the world. Comparing its findings to a similar study done in 2007, McKinsey found that “most companies have made little progress in this area.”

Who’s at fault? Let’s ask, rather, what’s at fault. Interactive media is an industry with historically low barriers to entry. Moreover, its delivery is based upon the almost continual exchange of bits and bytes of information. Pretty much by definition, that means the more media we create, the more data out there that can be measured — and the more opportunities to measure them. Pageviews, hits, clicks, time spent, pre-roll completion — the media glut almost pre-determines a measurement glut.

The IAB was created to bring form to this chaos, and has done a fine job of coalescing all parts of our industry around standards and guidelines that create the definitional consistency that make business simpler to conduct. Last week, we issued for public comment our Audience Reach Measurement Guidelines. Forty-four companies — publishers such as the Wall Street Journal and the Weather Channel, researchers such as Scarborough and Millward Brown, auditing experts such as Price Waterhouse Coopers and the Audit Bureau of Circulations, giants like Google and Microsoft, and newer innovators like YuMe Networks — came together to find the simplicity on the other side of complexity.

When Dinosaurs Ruled

The public comment so far has been largely quite positive. But not all of it. Edelman Public Relations executive and well-known blogger Steve Rubel said the guidelines are “beholden to an era when the reach dinos ruled the online landscape. They don’t any more. It’s a new era.” Mr. Rubel wants a whole range of measurement standards, including those for engagement and “reputation/sentiment.”

Well, you know, we all want to change the world. Me, I want to help those “reach dinos” do business today — and reach analysis remains a fundamental way they want to do it. Some of these dinosaurs are even advancing the practice considerably. The McKinsey study concludes on a hopeful note, finding that “some marketers have made rigorous measurement a priority,” and details the benefits they have accrued:

One marketer—a home-furnishings rent-to-own chain—used a method called RCQ (for reach, cost, and quality) to optimize its allocation of spending among ad vehicles. This metric, combining rigorous analytics with systematically applied judgment, measures the number of people each ad vehicle reaches and the cost of reaching them by vehicle. It also includes a quality factor based on changes in engagement, attitudes, and behavior. The RCQ analysis showed that the chain spent too much on its workhorse vehicles, such as direct mail, and too little on television infomercials (which convey more information) and online ads (which can be targeted more precisely).

I am reminded of something IAB Chair Wenda Harris Millard told me when I was taking this position, and has repeated in several venues since: “We” — the interactive industry, the cognoscenti, digerati — “need to be a part of, not apart from.”

So with apologies to Mr. Rubel (whose writing and mind I admire), maybe we put measurement standards for reputation and sentiment aside for the time being — and abandon a lot of other sectarian pursuits — so we can do business with our customers, not against our customers. Coalescing around a set of standards that simplify the ways we make people aware of, knowledgeable about, and favorable toward brands is (as Ms. Millard’s boss Martha Stewart would say) a good thing. They might even help us rebuild the consumer economy.

blog-header-rr.gif What do you call a publisher that provides its advertisers original and data-rich consumer segmentation and preference research, a cross-platform communications strategy, customized executions, trade promotion support, qualified sales leads for considered-purchase goods, customer relationship management of those leads, and end-to-end analysis of a campaign’s returns?

Very successful.

As the recession tightens its grip on the American economy, the media industry is discovering that the one segment not only holding its own among marketers but thriving is interactive. There are certainly numerous reasons for our relative strength. The gap between consumer time-spent and advertiser-spend is wider in interactive media than any other platform, an invitation for advertising share to shift this way, if only to reach equilibrium. Then, too, the availability of high-quality video on demand, an outgrowth of the broadband revolution, is proving increasingly attractive to the consumer-brand advertisers that had been relatively absent in the earlier days of interactive commerce.

But the larger reason for our vigor, as I argued in my last clog, is that interactive is a medium that can do it all — simultaneously. “Online marketing increasingly aims for awareness, consideration, preference and loyalty all at once,” The Economist wrote this week, in support of the IAB argument that interactive is the über-medium. “Internet advertising,” the publication proclaimed, “will be relatively unscathed in the downturn.”

This represents an historic shift in the nature and purpose of media companies. Where once a medium could thrive by serving as a simple channel for single-purpose advertising — as network television did for national brand advertising — today and in the future a multi-purpose services strategy likely will be the new normal for media companies.

And interactive publishers, the evidence below will show, have a considerable head start.

The Clicks Curse

Online publishers’ blessing begins with a bit of a curse: Advertisers historically have under-leveraged us for brand advertising.

For better and for worse, interactive began largely as a direct-marketing vehicle. Advertising is a science, but the limitations of the media turned it into an art, Doubleclick co-founder, Chairman and Chief Executive Kevin Ryan insisted to me in 1999. Mr. Ryan was wrong: Advertising is neither science nor art, but a craft — a skill-based trade, infused by artistry and based on principles established through time, that aims to achieve practical objectives. Although he meant only to invoke the claim to accountability that was and is a strong suit of the medium, he and other early Internet pioneers so closely associated accountability with specific, immediate, measurable actions that marketers reflexively identified us as a direct-response channel.

Even then, interactive industry leaders lamented the unthinking connection between interactive media and direct response. “There’s no correlation between click-through and brand building,” Rich Lefurgy, the founder of the Interactive Advertising Bureau, told me more than 10 years ago. “That sent us in the wrong direction.”

Indeed it did. A study recently released by our cousins at the European Interactive Advertising Association showed significant growth in selling-related “below-the-line” expenditures by marketers between 2006 and 2008 — a pattern consistent with what we’ve seen in the U.S. For example, the number of marketers saying they use the Internet to “generate sales” leaped 50 percent in that two-year period. The number saying they deployed interactive media to “influence purchase decisions” rose by one-third.

There’s nothing wrong with direct marketing. To the contrary, it’s a foundation of the marketer’s craft, and its $173.5 billion in annual expenditures dwarf those for any media-advertising segment. And because recessionary economies prompt marketers to shift budgets from brand-related media advertising toward direct-marketing and promotional activities, interactive’s strength in below-the-line functions has certainly helped to sustain our industry during this tough time.

But by concentrating our efforts on selling to the exclusion of branding, we have only limited ourselves. When the Booz & Co. consulting firm presented Phase II of their groundbreaking Marketing-Media Ecosystem 2010 study, sponsored by the IAB together with the American Association of Advertising Agencies and the Association of National Advertisers, at our Annual Leadership Meeting last year, Booz media practice leader Chris Vollmer was unsparing in his criticism. Displaying a chart indicating that only 39 percent of U.S. interactive advertising revenues came from the nation’s top 50 advertisers — the advertisers with the largest stake in building and maintaining great sustainable brands — Mr. Vollmer told our members: “You have grown by picking the low-hanging fruit.”

Free-Rider Syndrome

But there’s a much more pernicious consequence to interactive’s reputation as a direct response vehicle: the free-rider syndrome. Because clicks represent a small percentage of total advertising exposure online, marketers are gaining valuable brand lift — the kind that comes from frequent consumer exposure to advertising campaigns — for a fraction of what they typically would pay for effective branding campaigns. comScore recently published research showing that interactive display ad campaigns successfully boost marketer site visits (+46%), e-commerce transactions (+27%) and offline retail sales (+17%) — little of which is credited when cost-per-action (CPA) or cost-per-click (CPC) are used as the measure by which compensation will be calculated.

In other words, publishers are giving away that portion of the powerful marketer-brand equity they help to create for the price of a click. “With click rates for display ads now falling under 0.1%, I believe that publishers who sell display ads at a price that is based on the number of clicks could be engaging in one of the biggest giveaways since the invention of the medium,” comScore Chairman Gian Fulgoni wrote in a response to my last clog. “Publishers need to use the right metrics.”

(Mr. Fulgoni is speaking later this week at the “Empirical Generalizations in Advertising” conference at the Wharton Business School. His presentation, “How Online Advertising Works: Whither the Click?”, is available at 1-866-276-6972 or www.comscore.com/contact.)

I believe the free-rider syndrome will fade reasonably quickly from the scene — most likely after it kills a few good brands whose managers fooled themselves into believing they could sustain billion-dollar franchises on ten-cent direct-marketing efforts. After all, in most customer-supplier relationships, you do get what you pay for, certainly over the long-term. So if you optimize a campaign for immediate response, you are unlikely to gain the brand effects you are seeking.

Just ask the Detroit automakers, which for three decades, pushed sales by acclimating their consumers to a predictable, endless cycle of discounts, eroding virtually all affinity their audience once felt for their “timeless” brands.

Metrics That Matter

It’s beyond dispute that the lack of agreement on branding metrics has constrained the evolution of advertising, and probably harmed marketers, agencies and publishers.

Because of “inconsistent metrics, and a reliance on outdated media models, marketers are failing to tap the digital world’s full power,” McKinsey consultants Jacques Bughin, Amy Guggenheim Shenkan, and Marc Singer concluded after a recent study of global marketing decision-making. “Unless this problem is addressed, the inability to make accurate measurements of digital advertising’s effectiveness across channels and consumer touch points will continue to promote the misallocation of media budgets and to impede the industry’s growth.”

The McKinsey survey of 340 senior marketing executives worldwide, almost all of whom are using digital channels, is an astonishing exposé of marketing malpractice. Consider a small sample of its findings:

  • Of companies stressing the importance of brand building, only half try to measure increases in brand strength from their digital efforts
  • Fewer than one-third of companies attempt to measure the offline effects of online marketing
  • Eighty percent of respondents use subjective judgments instead of quantitative analysis to allocate budget across media.
  • Only half the companies using the Web as a direct-response vehicle use click-through rates — “the most basic of metrics,” as the consultants put it — to assess the effectiveness of their campaigns

The McKinsey judgment is harsh. When asked why they weren’t shifting more of their spending online, the marketers surveyed trotted out the habitual response: “insufficient metrics to measure impact.” But the real reason, the consultants found, is “a startling failure to measure.”

This research underscores a vital, valuable, and ultimately hopeful point: Assessing the effectiveness of interactive advertising for the purpose of media-mix allocation is not a measurement science problem — it’s a business-process problem. Science can take a long time; business processes can be designed, negotiated and, if the parties to them agree, implemented.

To be sure, there are multiple points of view about the metrics that matter. Many advertising doyens want to find a way to measure engagement, which the Advertising Research Foundation has defined as “turning on a prospect to a brand idea enhanced by the surrounding context.” But engagement is proving to have as many tributaries and navigation systems as the Amazon River and, at least for now, appears to be adding complexity to media analysis rather than simplifying it.

Industry guru Jack Myers argues for a more pointed measure of effective brand advertising. In a fascinating and well-reasoned historical review, he says marketers “will have no choice but to accept measures of persuasion and motivation.” Several industry efforts to calculate advertising “view-through” — a metric that comScore’s Mr. Fulgoni, among others, favors, and which promises to relate subsequent consumer actions back to advertising exposure, even absent a click — may achieve this goal. But here, too, there are sectarian differences, with some measurement firms favoring cookie-based approaches to judging effective view-through, others promoting pixels, and still others favoring panels.

There’s a great deal of evidence that the work to calculate brand effects is itself having a significant effect on marketer attitudes. The EIAA study, for example, found that more than 20 percent of marketers believe online is a very important vehicle for changing brand perceptions, up from 15 percent two years ago.

Marketer spending patterns also are changing. As Nielsen Online Senior Vice President Charlie Buchwalter noted after the IAB released its mid-term interactive revenue report for 2008, the four growth industries were packaged goods, automotive, telecommunications, and computing; together, they grew their online spend by nearly 30 percent over the equivalent period in 2007.

“Do you see what I see?” Mr. Buchwalter wrote. “These industries have consistently been the big overall ad spenders for a long, long time. Companies within these four industries make up 42 of the Top 100 national advertisers, and 52% of the advertising spend. And note that the two largest ad-spending industries, i.e. CPG and Auto, have been largely absent from the digital world until very recently.”

But to further propel growth, we have to reduce transactional confusion. Almost certainly, it will be necessary for industry leaders — Chief Executives and Chief Financial Officers of brand marketers, agencies, and publishers — to come together and reach agreement on the metrics that matter, and on ways to simplify the processes by which audience measurement is factored into media planning and buying. Happily, the IAB and the AAAA are attempting to do just that. Several months ago, we established a joint task force to attempt to systematize media measurement, based on objective. We call the initiative “Beyond Counting Exposures.”

The Services Imperative

But advanced publishers aren’t waiting for a set of magic metrics to instantaneously ignite a brand-advertising renaissance online. Instead, they have determined to build multiple paths to customer value and their own prosperity.

In my last clog, I noted the transformations that IDG and Cars.com had undertaken during the past decade. IDG recast itself from a magazine publishing company to a multi-line provider of such services as events marketing and premium lead generation, while still maintaining its leadership in print periodicals and online information. Cars.com, launched a decade ago as a classified advertising channel, remade itself into a lead-generation and customer relationship management resource for auto makers and their dealers.

They are far from alone. Meredith Corp., for example, the venerable publisher of women’s magazines, has acquired and integrated five marketing-services agencies to boost its value to customers: online marketing firms Genex and O’Grady Meyers, database marketing expert Directive, healthcare marketing provider Big Communications, and word-of-mouth agency New Media Strategies. The objective, as the company notes on its Web site (on a page titled, perhaps uniquely among publishers, “Our Agencies”) is to “build… on our proven custom publishing expertise to deliver innovative multichannel communication programs” by “combining digital capabilities with the ability to develop smart content.”

It must be working: among other things, Meredith has become the CRM agency-of-record for no less a client than Kraft foods — one of more than 130 clients of an integrated marketing division that now numbers 500 employees.

Meredith, of course, is not the only publisher that has acquired agencies and the services they provide. Building on its MSN media franchise, Microsoft acquired aQuantive in 2007, and with it an array of client-facing marketing functions. The company introduced one of them — the “Engagement Mapping” tool to track advertising campaign performance across multiple touchpoints, which was developed by its Atlas Institute, a marketing think tank — at the IAB Annual Leadership Meeting earlier this year.

CNET, the pioneeering online technology publisher, for years has been adding marketing and sales services to its offerings. Its CNET Content Solutions division provides tech manufacturers, distributors, and retailers product-information management services, business intelligence analysis to aid cross-selling and up-selling, even sales automation tools.

Booz & Co.’s “Marketing-Media Ecosystem 2010” study identified multiple ways publishers are integrating enhanced marketing services into their offerings. While contextual targeting remains the mainstay of the publishing industry, the consulting firm found that about half are providing direct marketing and/or database management options to their customers. Two-thirds are providing consumer-insights analysis. An even greater percentage — an astonishing 88 percent, in fact — are designing and implementing marketing campaigns.

Over the coming months, in this clog and in IAB conferences and events, I and the team will showcase the ways these and other publishers are riding services strategies into a prosperous future. The lesson, the evidence will show, is clear: If advertising is under pressure, publishers must diversify their sources of revenue beyond publishing. The way to do that is to serve customers as well as consumers. And the way to do that is to build services that create value exchanges between customers and consumers. Everyone benefits from an economy based on better information, better analyzed and served with a smile.

blog-header-rr.gifWhen the Interactive Advertising Bureau Internet Advertising Revenue Report came in for the second quarter of 2008, I took one quick look at the figures compiled by the PriceWaterhouseCoopers accounting firm and immediately said (first to myself, and then to anyone who cared to listen), “It’s a normal recession trend: Above-the-line dollars are moving below-the-line.”

I was surprised to discover how few people trained in interactive advertising had any idea what I was talking about.

I will explain, because it’s a response to the increasingly prevalent and nonsensical fear that the online display ad market is collapsing. It’s not — in fact, it’s growing. But to understand how and where and why, let me provide a short course on marketing practice.

The Purchase Funnel

Marketing needs are typically defined by an image called “”the purchase funnel,”“:http://marketing.gfkamerica.com/funnel/funnel.swf a diagram of consumer decision-making identified with the automotive research firm Allison-Fisher International. In this inverted triangle, consumption choices begin with awareness, and gradually narrow to
consumer familiarity, consideration, preference, purchase, and ultimately loyalty.

Different marketing disciplines long have been associated with different levels of this funnel. Awareness is generated by main-media advertising — typically big blasts on television, billboards, and in magazines. Consideration might have more of a retail angle — newspaper or radio advertising, say, announcing a product’s availability for a limited period at a local store or dealership. Purchase often is motivated by a favorable price — a consumer promotion featured in a newspaper’s free-standing insert or in a direct-mailed catalogue — or merely the fact that the product shows up, thanks to a trade-promotion deal between a manufacturer and a retailer, on an end-aisle display in a grocery store. Loyalty depends on the user experience, naturally, but consumer-relationship marketing (frequent flier and after-market service programs, for example) can play a significant role.

The upper part of the funnel, the functions associated with measured media advertising aimed at fostering brand or product awareness and consideration, are typically referred to as “above the line,” while the tasks that relate more directly to selling are termed “below the line.” Wikipedia attributes the terminology to Procter & Gamble’s methods for accounting for its marketing expenditures beginning in the 1950s, but the phrasing almost certainly derives from the way business expenses — notably, deductions from adjusted gross income — are conventionally dealt with in accounting.

Moving the Metal

It’s an axiom of marketing that when the economy gets rough, marketers shift budgets from above the line programs to below the line — that is, they trade off the longer-term effects of brand-building for the shorter-term need to move products off shelves. While such swapping pains publishers, ad agencies, and marketers’ own advertising teams, the economics of a business often demand it.

Consider the U.S. automotive industry, now in as tortured a position as it’s ever been. Automakers don’t sell cars to consumers: They sell cars to dealers, who in turn sell them to consumers. Dealers, just like consumers, have to finance those purchases; unlike consumers, though, they have to finance them in volume, a system known in the auto business as “floor planning.” When consumers stop purchasing cars, dealers can quickly get upside-down on their own loans. They often have little choice but to demand help from Detroit, in the form of incentives and rebates and other “trading money,” to move the metal now.

I can’t do any better in explaining the dealers’ dilemma than the description I offered in my last book, Where the Suckers Moon: The Life and Death of an Advertising Campaign. Here’s what auto retailers faced during the recession of 1991:

Under the floor-planning system, every day a car sat at a dealership, it cost them money — the interest they paid on the loans they took to buy the cars at wholesale. A car with a wholesale cost of $13,000 financed at two points above the late 1991 prime of 6.5 percent cost the dealer $1,105 a year, or slightly more than $3 a day. As a rule of thumb, dealers liked to keep a two months’ supply of cars on the lot, and ordered them from the manufacturers accordingly. If a dealership accustomed to selling thirty cars a month saw sales suddenly drop to ten cars a month, its floor planning expenditures could rapidly rise from $180 per day to $300 or more per day. Needless to say, dealers deemed trading money necessary for their survival.

To one degree or another, the challenges faced by automotive dealers during a recession are replicated across the economy. Computers, mobile phones, overnight delivery services, air travel, hotel rooms, alcoholic beverages, even hair care products and salad dressings, become harder to sell — which means that marketers, under pressure from their distribution chain, feel compelled to try a harder-sell, even at the expense of longer-term brand-building that might otherwise help them maintain pricing at more desirable levels.

So when I saw in October that interactive advertising revenues showed a four-point spike in the second quarter for search (which looks an awful lot like a below-the-line marketing function) and a one-point decline in pure display, I recognized the classic budget shift at work. For those who haven’t seen it before, I can offer this admittedly slight comfort: “Welcome to the recession.”

Prices Under Pressure

This isn’t to say that display advertising prices aren’t under non-recessionary pressure. They are. But here, too, there are common forces at work that, for better and for worse, predate interactive media, in some cases by a few millennia.

The first and oldest is the simplest: supply and demand. Taking away all possible qualifiers (“premium,” “non-premium,” “quality,” “branded,” “network,” etc.) there is a theoretically limitless amount of advertising inventory available on the Internet. After all, you or I, if we want, can start a global video network, “magazine,” or “newspaper” with the applications that come built into the average laptop and the free or nearly free services available on the Web. Should we get lucky and sell out our ads, we can always add a few billion more impressions quickly and cheaply — just buy another hard drive (you can get a terabyte for $150 at retail)!

And the fact is, this ain’t theory: Analyst William Morrison of ThinkEquity Partners estimates that just under 1 percent of Web sites globally — 1.2 million of 160 million sites — sell advertising, on their own or through networks. That’s a lot bigger number than the three broadcast television networks I grew up with.

While supply is exploding, demand — again, viewed in the aggregate, without qualifiers — is pretty stable. Since the United States emerged from the recession of the late 1970s-early 1980s, annual advertising expenditures have held steady at 2.2 - 2.4 percent of GDP, give or take 10 basis points.

Once you start parsing those aggregate figures, though, you find that the character of that demand has changed quite a lot over the decades. It’s a commonplace in the advertising industry that the ratio of U.S. above-the-line marketing expenditures to below-the-line expenditures has inverted since the 1960s. Where main media advertising once comprised some 70 percent of marketers’ spend, today, according to advertising guru and consultant Jack Myers, 70 percent of spend goes to trade promotions, consumer promotions, direct marketing, and the like.

In other words, demand for classic brand advertising has been going down for many years, while the supply of advertising inventory has been going up. That, combined with the recession, is bound to put a lot of pressure on brand-advertising prices, which in the interactive world are associated with display.

Branding Breakthroughs

Bad news for publishers and agencies, right? Well, no. Because amid the advertising carnage, it turns out that interactive advertising as a whole is doing quite well — up almost 13 percent in the second quarter of ‘08 from the same period a year earlier, and up 11 percent in the third quarter, according to the IAB/PWC report. This growth was taking place while the overall advertising marketplace was in decline. And that online spend was not all going to search. During the first half of this year — the last period for which we have segment breakdowns — display-related advertising, including but not limited to banner ads, was up 1 percentage point, thanks to a tripling of online video advertising from a year earlier.

Moreover, premium content and its allied advertising inventory can be really premium. The IAB/Bain Digital Pricing Study, released over the summer, indicates that video inventory is selling out at a 90 percent-plus rate, at an average CPM of $43. Perhaps more interesting, the marketplace — which is to say marketers and agencies, following the lead of their consumers — appears to be putting an implicit definition around “premium video” inventory: It’s advertising avails associated with content created by well-known, well-branded, video entertainment providers, such as popular television networks, Hollywood studios, and creative stars. In other words, well-branded media attract brand-aware consumers and brand-sensitive advertisers, generating exposure, engagement, and likeability.

But while the growing attractiveness of the online medium to brand advertisers probably accounts for much of our industry’s relative strength right now, there’s a larger and more important phenomenon taking place: Marketers are recognizing that interactive can achieve most, if not all, of their objectives, quite often at the same time.

In the old world of the traditional purchase funnel, there were clean lines that separated not only the functions identified with different marketing goals, but the media deployed on behalf of each function. Thus, television and periodicals were branding and consideration media; direct mail and FSI’s were promotional media; and while the ‘twain met on occasion (as with DM ads in the backs of magazines) the merger was too meager to be meaningful.

The Internet is vastly different than the media that preceded it: It’s one medium that can perform the marketing functions associated with all media. Indeed, individual advertising executions can serve multiple goals. For what is an online rich-media food ad that allows the user to reach through the tasty visuals to get a recipe, and reach through even further and obtain a coupon for the ingredients from a local supermarket? Is that a brand-awareness ad, a consideration-enhancement ad, or a consumer promotion?

The answer: All of the above. It’s for this reason that Neil Ashe, President of CBS Interactive and an IAB Board member, calls interactive “the yes medium.” As in: Can it brand? Yes. Can it promote? Yes. Can it encourage loyalty? Yes.

In recent years, advertisers, agencies, and publishers have been consumed by the complexity that combinatory effect presents in marketing strategy development, media planning, measurement, and compensation. From a media-mix allocation standpoint, how do you plan a “yes medium”? How, exactly, do you budget for it? To which agency or functional expert do you assign responsibility for campaign development and management? Who gets credit for its successes?

Our industry’s vigor suggests that marketers finally are beginning to see this not as a challenge, but as an enormous opportunity.

Adding Value

This hybridization of media also has historical antecedents. One of the most recent and surprising is the magazine industry.

In the 1980s, for reasons not dissimilar to those we’re experiencing now, magazine advertising rates came under pressure. Changes in production technologies and distribution channels prompted a flood of new periodicals, most of them in niche segments that promised marketers more targeted reach to consumers than the established mass magazines. With larger magazines losing scale and facing an explosion of competitive inventory, ad agencies began demanding price concessions, forcing publishers to consider breaking the fixed-rate structure that had dominated the industry for decades.

Publishers tried to resist going off their rate cards by offering their customers what they euphemistically called “added values.” These included in-store events, ride-and-drives, shelf-talkers, polybagged inserts, and a multitude of other gimmes. In effect, they were combining an above-the-line program — magazine advertising — with various below-the-line elements drawn from the disciplines of trade promotion, consumer promotion, direct marketing, and events marketing.

The problem was, most publishers saw these “added values” as disguised discounts, instead of looking at them as service offerings for their best customers. So most did not build out the new strategic capabilities that the changes in the marketplace demanded; they continued to consider themselves publishers of print periodicals, not providers of marketing services. As a consequence, they did not invest in the talent, technologies, processes and relationships that would allow them to scale these services, and they didn’t develop hybrid pricing models that valued the bundled services appropriately. By sticking to the fiction that they were in the brand-advertising-supported print periodicals business, many publishers relegated themselves to endless rounds of price competition for inventory their customers increasingly viewed as a commodity.

Lesson for Publishers

There’s a cautionary lesson here for interactive publishers: Development of new marketing services and the hybrid compensation structures that go along with them is the key not only to survival, but prosperity.

The good news is, many interactive publishers have learned that lesson and adapted.

IDG Communications, the proprietor of such titles as PC World and Macworld, has been aggressively and successfully transforming itself from a print and online publisher into a provider of marketing services for its business-to-business customers, with such success that half its U.S. revenues now come from non-print sources, says its CEO Bob Carrigan, an IAB Board member (shown at left). Central to its evolution has been the integration of premium lead generation into its service offerings.

“The excellent thing, and good news, for publishers is that there is life after print — in fact, a better life after print,” Patrick J. McGovern, IDG’s founder and chairman, told The New York Times earlier this year.

Cars.com, the 10-year-old destination site for automotive shoppers, has booked record quarters this year despite the trauma in the auto industry because it has built a virtuous circle of marketing services that link such above-the-line offerings as brand, dealer, and classified advertising to such below-the-line tools as lead generation and even customer relationship management for its clients.

“You have to go out and prove it to your customers,” Cars.com Senior Vice President and General Manager Mitch Golub (another IAB Board member) told me a few weeks ago, referring to the various forms of value a publisher can and must provide today. “You have to report it to them, you have to show it to them.”

What Industry Needs

I am under no illusion that any of this is or will be easy. If a publishers’ value to clients lies increasingly in the provision of marketing services as well as media advertising, that implies significant training and development needs for the industry. For this reason, IAB is launching a professional development certificate program to train sales teams and others in the solutions-oriented consultative selling that increasingly will dominate our field. (We launched this program two weeks ago with two sold-out sessions of our new “Yield Management School for Publishers.”)

More fundamental still will be agreement on metrics. If the value of hybridized marketing communications campaigns lies in the integration of multiple services to achieve multiple objectives, then we — publishers, agencies, and marketers — must agree on consistent metrics that can assess these distinct achievements appropriately and well. We have to get over the delusion that a single measurement technique, such as “clickthroughs,” can apply equally to above-the-line and below-the-line goals. If exposure, time spent, and other gauges of long-term brand-building effects have meaning, then publishers should be compensated for them in addition to or separately from the shorter-term selling goals realized through promotional programs.

This is not only good for publishers, it’s vital for advertisers: The marketing landscape is littered with dead companies that starved their branding programs in order to feed their selling campaigns — the surest way for consumer goods marketers to lose their audience and their pricing ability. The long-term value of branding campaigns was not lost on the playwright Arthur Miller, who had Willy Loman, the tragic title character in his epic drama Death of a Salesman, lament his own inability to keep up with his neighbors.

“I told you we should’ve bought a well-advertised machine,” Willy Loman tells his wife, Linda, when their refrigerator breaks down yet again. “Charley bought a General Electric and it’s twenty years old and it’s still good, that son of a bitch.”

“Whoever,” Willy bemoans, “heard of a Hastings refrigerator?”

If only to prevent themselves from becoming the next Hastings — or Ipana, Packard, or Montgomery Ward — interactive display advertising will continue to grow steadily, quarterly recessionary plateaus and dips notwithstanding.

But what will truly propel it is the increasing recognition — already apparent among marketers and supported by publishers’ growing capabilities — that this is a medium that does more.

The Fed's Web Takeover

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blog-header-rr.gifWhat is the definition of “your data”? The answer may determine the future of the Internet - and, more broadly, of communications media, the users that derive value from them, and the marketers that depend on them.

The combination of the word “data” or “information” with a personal possessive pronoun lies at the heart of the current debate over interactive advertising and privacy. In the Monday New York Times story “Web Privacy on the Radar in Congress,” reporter Stephanie Clifford wrote that a subject of her piece knows that companies “are collecting his data.” The Center for Democracy and Technology, the prominent Washington-based proponent of a Federally mandated “do not track list” against interactive advertising, told the Los Angeles Times recently that Americans are “uncomfortable” with “the collection of their data.” The Federal Trade Commission, in proposing principles to control “behavioral advertising,” recommends that “consumers can choose whether or not to have their information collected for such purpose.” Democratic Congressman Edward J. Markey of Massachusetts said yesterday that he expects to introduce legislation during the coming year that “includes a set of legal guarantees that consumers have with respect to their information.”

All well and good, you might say: My identity must be protected from thieves and exploiters. But guess what? The plans that these activists and their enablers are promoting have nothing to do with identity protection. To the contrary, they are agitating - some, perhaps, unwittingly — for a new property right, unique in U.S. law, that would provide consumers personal ownership of all information that derives from their activities, no matter how anonymous, non-identifying, aggregated, or otherwise impersonal it may be. They are further proposing that the Government, as the codifier and protector of such rights, use this definition of “behavioral data” to assert Federal control over most Internet operations. The effect could be to cripple the architecture of the World Wide Web.

Oh, Behave

Although this effort to socialize the Web is taking place in plain sight, it involves no small degree of artifice. Rarely if ever, for example, are such phrases as “his data” or “their information” explicated - leaving readers to believe that sensitive personal records are being compromised. But on occasion, the activists slip in telling ways. Jeff Chester, the proprietor of the extremist Center for Digital Democracy and a frequent witness in regulatory hearings in Washington, has made clear his belief that no distinction exists between identifying data and impersonal data: If it can be used in any way for marketing purposes, it belongs to the individual, and Government should restrict its application. As he wrote on his blog last April, interactive publishers

… know that in today’s digital marketing era, the very tiny bits of personal behavior they have identified are parts of individual human identity. Our ‘virtual’ identities may be composed of discrete and disassembled bits of information about ourselves: what we like to read, watch, buy; our problems and concerns (such as health or our children’s education) or our political interests, but they are very much living aspects of ourselves. The goal of interactive marketing is to collect, analyze, and use such information to serve the interests of those paying for the targeting. The technique uses one, two or multiple individual data points in a variety of ways (search ads, broadband videos, virtual worlds) to get individual consumers to behave or act in ways that favor or reflect the marketer’s goals.

State legislatures -the stalking horses for the Washington lobbyists and legislators looking to constrain marketing and media - have followed the lead of Mr. Chester and his “regulate-the-Web” comrades. A New York State bill that was written to restrict what it termed “online preference marketing” actually promises explicitly to extend Government control over virtually all consumer research that has a Web component. The bill (sponsored, mystifyingly, by an Assemblyman from Westchester County, home to such consumer marketing and media giants as PepsiCo, the Readers Digest Association, IBM, and Starwood Hotels & Resorts), defines “online preference marketing” as “a process used by entities whereby data is typically collected over time and across Web pages to determine or predict consumer characteristics or preference for use in ad delivery, including the use of non-personally identifiable information.”

These definitions and metaphysical disquisitions help us understand how breathtakingly and unprecedentedly broad the supposedly protective proposals to restrict “behavioral targeting” actually are. They unambiguously define “behavior” as any and all consumption activity, no matter how distanced it is from one’s personal identity. Equally plainly, they say that any “data” or “information” that derives from such behavior would fall under their proposed regulatory scheme, even if it cannot compromise an individual’s identity, let alone cause him or her any harm.

Calling All Clients

Let’s be clear what’s at risk here: the Internet, and any communications activity that depends upon it. Why? Because all Internet activity throws off such non-identifying “behavioral” data all the time. Indeed, behavioral data is the center of the client/server call process that’s the essence of the Internet’s architecture, which delivers content based on information generated by user activity. As IAB Vice President for Industry Services Jeremy Fain, one of the interactive media industry’s top operations experts, puts it: “A client calling a server asking for content, and the server sending it back, is the fundamental underpinning of the Internet.”


Put this vital piece of the Web’s infrastructure under Government control, as the activists suggest, and the ad-supported innovation that has driven this communications revolution would be impaired. As Fain explains, “Within the client request there are many pieces of information, including a cookie, an IP address, and a user agent string. Cookies could be stripped out of that process, but the Web experience would change drastically. Cookie IDs are essential to user experience; as Wikipedia nicely observes, cookies give a state, a ‘memory of previous events,’ to otherwise stateless HTTP transactions.”

Without cookies, each new page view would be an isolated event. The Web’s relevancy engine
would disappear. A news site wouldn’t be able to give you recommendations for articles you might want to read based on earlier things you’d read. Click analysis would be impossible, so retailers and brands would not be able to understand how their customers are using their sites. There could be no logged-in state beyond a single session, making it necessary for a user to log in to every site each and every time he or she visited. For retrieving email this wouldn’t be a big change, but for any news or entertainment sites that require a registration, any blog, any social media site, this would change the experience dramatically.

“IP addresses can’t be stripped out,” Fain continues. “They are fundamental to the delivery system — both client and server must know where to send the information. User agents - which are basically the identification of the browser type — should not be stripped out, either. Besides being fundamental to conducting any business online — they are the best way to distinguish human activity from machine-generated activity, and accurately count how many times content was delivered to real people - user agents are essential to delivering better experiences. At first glance, user agents may seem tangential to the consumer data and information discussion, but decisions are made by Web sites based on a consumer’s user agent strings all the time. A person using the Safari browser will regularly see something different from someone using Internet Explorer.” (An excellent example of the importance of user agents is the mobile Web: Page views will be optimized for the smaller screen based simply on the server’s ability to know that the consumer is using a mobile-device browser. )


“This is behavioral information,” Fain says, “but if companies cannot collect or store it, they cannot make business decisions on how to optimize their sites for their viewers. ”


In other words, the Internet runs on behavioral data. When a user launches her browser, behavioral data is generated that gets her to her designated home page. When a user clicks on a de.licio.us bookmark, behavioral data is generated that whisks him to the site. When users click on an article’s “go to next page” button, behavioral data is generated that positions them on the next page - in pretty much the same way a click on a “skip this ad” button will assure they don’t get the advertisement they don’t want to see. Under no normal circumstances is this behavioral data connected to an individual’s name, address, Social Security number, or other information we would conventionally associate with personal identity.


Government Control

Sadly, this doesn’t seem to matter to the activists, because under the rules they are pushing in Congress, this impersonal string of otherwise meaningless symbols would still be classified as “their data,” and subject to Government regulation. And with that change, control of media and commerce would pass from the private sector to the Feds.


Think I’m being overly inflammatory? In addition to the obvious damage to interactive content customization and relevance, consider what else would be placed at risk if this de facto, all-encompassing definition of “behavioral data” were to become de jure:

  • Bar-code scanners used at checkout counters. With ownership of impersonal consumption data legally enshrined as consumer property, this crucial component in retail supply-chain management could become unusable - at least if the data they collect is transmitted over the Web. Internet-based supply-chain management systems employing RFID tags could similarly be compromised.
  • Lists of “most e-mailed stories” in newspapers and magazines. These popular features - and vital editorial management tools - could become illegal under the proposals floating around Washington and the states, for they depend on aggregated behavioral data.
  • Search-engine competition. Kiss goodbye any efforts by its competitors to compete with Google. Whether small fry like Cuil or giants like Microsoft, their ability to take data to optimize their own processes or experiment with new algorithms would be gone. So would the search-engine optimization and search-engine marketing industries, too.
  • Social science research. Academics interested in observing, say, the effect of health communications on Americans’ behavior would be restricted from utilizing the anonymous data generated by the billions of interactions daily between Web users and content. Even the American Psychological Association, which recommends “informed consent” as a standard in most research, recognizes that some forms of research, including anonymous questionnaires and “naturalistic observations” in cyberspace, don’t necessarily require it. Some legislators and activists, though, want their judgment to supersede the scientists’.
  • Journalism and commentary. If people own “their data,” publishing observations of their activities online - how many times a video was watched, how many members of a social network enjoy Cream of Wheat for breakfast, what people are saying about that new Carmen Diaz movie - would fall into a legally murky area. Remember, California , for 20 years, has accorded people “personality rights” that prevent the unsanctioned use of anyone’s “name, voice, signature, photograph or likeness on or in products, merchandise or goods.” Extending this right to “their data” is basically what the anti-Internet proposals envision. In a profound, First Amendment-grounded critique of the FTC’s proposals against behavioral marketing, the Newspaper Association of America wrote, “The fully protected rights of news publishers are at stake. A limitation on behavioral targeting would directly affect the selection of content that is presented to readers.”
  • Branded-media and small-publisher growth. Many major media companies are hooking their futures on the opportunity to gain more reach by constructing large networks of affiliated sites, whose content and demographic affinities would be abetted by network-based ad delivery. Ban the use of anonymous behavioral data, and these enterprises comes tumbling down. So does network-based advertising support for small publishers, which underpins the economics of tens of thousands of sites.
Real Crimes

It’s ironic that I’m writing this only a week after the U.S. Government broke what The New York Times described as a global, criminal “cyber-ring” that “plundered the credit card numbers of millions of Americans.” Such threats - to family information, financial records, health data - are real. In fact, exposure of such crimes pretty much requires the retrieval and storage of user string agents and other behavioral data by e-commerce providers and other sites. But instead of zeroing in on real crimes and real harm, aggressive legislators, regulators, and their champions seem hell-bent on grouping under the same regulatory regime sensitive identifying data and the kind of impersonal behavioral data necessary to run the Web.

I - and my colleagues at the IAB - have been sounding these alarms for more than a year. I’ve testified before the Federal Trade Commission, and the House Small Business Committee. Yet the call for regulation grows bewilderingly louder, from elected officials who have specified no harm and conducted little research. Even the militant Center for Democracy and Technology, which has declared that “concerns about behavioral advertising practices are widespread,” recorded zero consumer complaints filed with states’ attorneys general in 2006-2007 over privacy violations involving behavioral targeting. Zero! Indeed, in its just-released 37-page report Online Consumers at Risk and the Role of State Attorneys General, which documents thousands of cases of Internet-related sales fraud, spyware, phishing, data security breaches, and child solicitation, the word privacy comes up only once - in a Texas case filed against two Web sites that allegedly failed to protect “the privacy and safety of minors.”

Such violations are already covered by existing law (in this case, the federal Children’s Online Privacy Protection Act, or COPPA) but the CDT, asserting that “behavioral advertising poses a growing risk to consumer privacy,” wants “a new general privacy law backed up by regulatory enforcement.”

It’s time for CMO’s, media company CEO’s, technology entrepreneurs, free-press advocates, independent Web publishers, retailers, e-tailers and others who depend on robust Internet communications and a thriving free media to stand up and let the world know where these recommendations are explicitly heading: Toward a Government takeover of the Internet, and a silencing of the diverse voices that make up the Web.