In 2017, Group M, a leading media agency, estimates that we will see marketing expenditures cross the $1 trillion threshold for the first time ever. This includes about ~$550b of advertising expenditure or ‘Above The Line’ i.e., print, TV, digital, radio, OOH etc., and balance ~$450b in marketing services, primarily ‘Below The Line’ spends e.g., direct marketing, events, activations such as tasting sessions within a mall as well as buying of analytics services and miscellaneous vendors.
Within the overall trendline of rising marketing expenditures, there is a bunch of sub-trends at play that are useful to keep in mind
– Inside this ~$1t megabucket, the sizes of individual sub-buckets are getting reconstituted. Print and legacy media such as television are losing market share to digital and mobile
– For data-rich industry segments such as banking, telecom and online media, investment in marketing analytics is amongst the biggest component of increased spends. In some cases the entire uptick in budgets may be due to marketing analytics
– Mass-media advertising or advertising to ‘unknown’ consumers is dramatically shrinking. More and more advertising today is to ‘known’ consumers, known by the data tags or digital breadcrumbs they have scattered about themselves.
Of the above, the first two are well-understood and acknowledged. The third is an important one given the implications it has for media companies.
Mass-media caters to ‘unknown’ audiences; most online media targets ‘known’ audiences
Aimed at a mass of unknown audiences, the mass-media ad is a bundle that does multiple things: it enables product discovery, it serves as a reminder to purchase, it communicates offers that spur immediate action, it does some post-purchase assuaging, it provides a signal of credibility etc. Each type of consumer absorbs the specific cue that is meant for her. Of course, from time to time, brands choose to stress a particular kind of message, such as product discovery when they are launching a brand. As a result of these multiple cues it has to send to its amorphous audiences, mass-media advertising is a particularly blunt tool. In the absence of any alternative it survived and thrived.
Thanks to the growth of organized retail and internet, increasingly more and more sellers know who they are selling to. Brands too can partner with retailers to send messages to ‘known’ consumers, e.g., I have a new brand of premium catfood, and i can partner with Tesco to send an offer to cat owners; I don’t know their names or addresses, but I know that they own a cat, or at least that they buy a lot of cat food. Sending messages to known customers mean less wastage and clearly better return on your marketing rupee.
As it becomes easier to advertise to ‘known’ customers, mass-media advertising becomes relevant only for certain kinds of messages – when you want to cue credibility, or when you want to spur them into immediate action. This is why why e-commerce loves to advertise in print in India. But when it comes to product discovery and for reminder ads, mass media is clearly less efficient.
The rise of niche advertising solutions that don’t look like advertising
To cater to brands seeking a solution to product discovery and reminder ads, online players have emerged to deliver best-of-breed solutions. For product discovery we have Pinterest, Fancy etc and even domain-specific ones such as Birchbox (beauty), Lyst (fashion), Houzz (home decor) etc. The battle isn’t won yet, and there is likely to be a lot more activity in this space given how central product discovery is to marketing. For reminder ads, we have Amazon Dash, which is essentially a reminder ad in a physical format, or even subscription-led businesses such as dollar shaving club. Again, these are early days though; there is lots to come.
To recapitulate, as our ability to know about consumers improves, we are beginning to see a move from mass-media to more targeted advertising or solutions, online or heavily analytics-driven, addressing specific audiences around their specific marketing problems, such as helping her discover a new product or reminding her to buy. Thus as advertising moves online, and increasingly deals with data-rich audiences, it is thus unbundling into its basic components – product discovery, reminder advertising, time bound offers, signalling etc., with best of breed solutions emerging catering to each.
- Product Discovery – Pinterest, Canopy, Wirecutter, Birchbox etc
- Reminder Ads – Amazon Dash; Dollar Shaving Club etc
- Time-bound offers – Groupon, Apple’s iBeacon etc
- Signalling – ? (This is one segment that seems safe for mass media)
What are the long-term implications of these trends – growth in advertising to known audiences, and the simultaneous unbundling of advertising?
1. A potential decline in ‘advertising’ as we know it
As unbundling of advertising accelerates and startups emerge with their take on how they can solve product discovery and reminders, we will increasingly see solutions that don’t look like advertising. Let us take reminder ads, which are being replaced with Amazon Dash or Dollar Shave Club type subscription solutions. When Group M counts the quantum of ad dollars, it is unlikely Dash and Dollar Shave Club will be counted as part of advertising at all. They solve advertising problems but aren’t part of ‘advertising’ really. Perhaps in 2040, the size of marketing expenditure may well be smaller than what it is. (or to rephrase, it may well be larger in absolute terms, but a smaller percentage of the economy).
2. A changing content model
Mass-media advertising financed a sizeable portion of the content industry via the ad-led model. The ad-led model gave away content almost free, thereby acquiring audiences and selling them to advertisers. This is particularly true of news content and newspapers, less so for TV where subscription revenue is a mighty chunk. As mass media declines, and ad flows to newspapers slow down to a trickle, we will start to see financing challenges for high quality content. For news content, the financing challenges are well underway – witness the decline in newspapers and what it is doing to high quality journalism.
The inability of newspapers to support journalism is supplemented by the fact that the online platforms such as Google, FB, Instagram, Snapchat etc., that have emerged in recent times to chew off the ad dollar, do not pay for content. They take advantage of user generated content. Thus the primary financing model of third-party created original content, i.e., paid by advertisers, is breaking down.
When advertisers are not willing to pay for original content, or not pay as much, then the following happen – either, the absolute content produced will come down (we are seeing a lot more repurposed content from online players), or we will see consumer-financed content models (Times, FT, Telegraph and WSJ, NYT, WaPo have all pulled off paywall-led models, hard or porous), or we will see innovative financing arrangements to produce original content.
Some examples of what i call innovative financing arrangements include Texas Tribune (an independent, investigation-focussed online only news site financed by non-profit contributions), Sharesleuth (a investigative journalism site which is financed by short trades on the companies being investigated – see here), Kickstarter, which both finances journalism projects, as well as sponsors investigations of its own. On a related note we have IPSMF in India which funds sites committed to public-spirited journalism.
3. New distributors of content will emerge
Historically media & entertainment companies who sold audiences to advertisers were the sole distributors of content. Going forward we will see more and more unlikely players emerge as distributors, leveraging what consumers share with them during their transaction.
A great example is Uber’s Trip Experiences – imagine i get into a uber ride which is 11-mins away, and uber app recommends me 2 stories of 5 mins each, tailored to suit my interests (basis my past reading) and the length of the journey. Or imagine Starbucks sending me a story to accompany my coffee, or even offering a story in lieu of my change. This is what i call context-specific media, where i get to consume media tailored for a specific context.
In the future, content will break free from the confines of ad-led models to embrace many possibilities. We may see content being used as a hook to lure consumers (Amazon), or as an alternative to currency (aforesaid Starbucks example) or as a sweetener to the transaction or experience (Uber’s Trip Experiences). Context-owners could become the equivalent new media vehicles with media consumption linked to contexts and APIs.
What should traditional media companies do?
The challenges are different for each company naturally, and vary with how exposed they are to ad-led models.
For media companies particularly reliant on mass-media advertising, the solution is two-fold
i) Grow subs revenue as far as possible by charging readers, selling to context-owners etc.
ii) Explore initiatives in the unbundled components of advertising.
NYT’s recent acquisition of Wirecutter can be understood through this framework. Wirecutter is an innovative attempt to solve product discovery in the tech space, through reviews of what it considers the best product in each tech vertical. Revenue is through affiliate fees, shared by Amazon when customers click on the buy button in the review. By buying Wirecutter, NYT is making sure that it has a stake in the product discovery space, as less and less mass media advertising flows into the brand it has built.
There are possibly many ideas in this space. Magazines, for instance, could look at curating interesting products for their readers a la birchbox, along with their subscription copies. Surprisingly something no magazine has tried. To target reminder ad opportunities, media companies could look at distributing coupons on behalf of advertisers such as Gillette or Colgate, both akin to subscription products.