Why Advertising is Broken (and How to Fix it)

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Historians may someday refer to the year 2006 as the year that the advertising establishment transformed.

The forces behind this transformation have been simmering for a long time. For many years, marketers have suspected that the broadcast media they buy is overpriced, that the sample-based measurement tools used to assess the effectiveness of advertising are antiquated, and that mainstream ad agencies and broadcasters are not up to the job of providing the kind of accountable, multichannel campaigns required in an era of fragmented and overlapping media consumption. Couple this discontent with the runaway success of new, auction-based forms of advertising pioneered by the major search engines, and you have a genuine crisis of confidence in the advertising establishment.

The roots of this crisis are well summarized in a new book by Rex Briggs and Greg Stuart titled "What Sticks: Why Most Advertising Fails and How to Guarantee Yours Succeeds." Interestingly, the authors aren't Web marketing zealots but seasoned ad professionals (Mr. Briggs is the CEO of a cross-media marketing measurement firm; Mr. Stuart is the CEO of the Interactive Advertising Bureau). Using data compiled over a five-year period and vetted by the Advertiser Research Foundation, the authors tracked the way 30 major marketers bought more than a billion dollars of media and measured the actual effectiveness of this spending. Their conclusions: 37 percent of advertising dollars are wasted, amounting to some $85 billion dollars of waste per year.

Messers. Briggs and Stuart blame a number of factors for this colossal waste: first, the fact that in far too many cases, critical decisions made by CMOs and ad agencies are still being made "by gut." This approach, which eschews metrics in favor of intuition, may have worked in the 1980s, when the attention of most of America could be summoned with a 30-second spot placed on popular shows on the three major networks, but it's poison in today's diffracted media environment. Contributing to the waste is the fact that sample-based audience research is inadequate or ignored, and that far too many marketers continue to use antiquated "silo" thinking that fails to bring in all of the essential organizational stakeholders (sales, marketing, top management) into the ad decision loop.

Messers. While Briggs and Stuart don't lay the blame for this waste exclusively on the heads of broadcasters, its findings suggest that reform, when it comes, will come from outside, not from within the advertising establishment. After all,  that wasted $85 billion might not be doing a thing for marketers, but it's being pocketed by those who run media. From the broadcasters' perspective, the lost money isn't waste: it's profit, so there is zero incentive for media owners to fix the system.

The findings also go a long way toward explaining why, right now, there's so much resistance on the part of the broadcast establishment to the E-Media Exchange (an initiative created by a group of blue-chip marketers designed to use an electronic auction to bring the actual cost of buying media in line with its value), and to the various moves that Google to extend its auction-based ad platform into non-search media buying.

Lately, the broadcasters have come up with dozens of reasons why bringing automation and market transparency to media buying can't work. They cite the notion that network buys are too complex to be auctioned off, and bridle at the notion that what they do can be "commodified." The big broadcasters have dug in their heels and refused to participate in the E-media Exchange. This behavior, in my view, is irresponsible, especially in light of a recent McKinsey study citing the fact that while viewers of traditional TV advertising have declined 50 percent in the last decade, broadcasters have hiked rates by 40 percent. Clearly, these broadcasters have a lot to lose by reforming the way media is bought and sold, and they're not going to let the change happen without a fight. They hope that by boycotting the future, they can make it yield, but they're about to learn a terrible lesson: consumers and marketers, not agencies and broadcast networks, have seized control over advertising's future. Transparent media marketplaces are the wave of the future, and their efficacy has been demonstrated by Google and the other engines pioneering a way to make the pricing of advertising rational and its consumption relevant and non-intrusive.

There will be a lot of pushback from the advertising establishment in the next year, and I'd expect to see an escalating flow of FUD (Fear, Uncertainty, and Doubt) being flung back at the forces of reform. My recommendation is to ignore the FUD, and keep your eye on the E-Media Exchange and Google's various moves to extend its real-time auction technology to offline media. The future is being built right now and forward-thinking marketers will benefit from understanding and exploiting the way that rational advertising markets work, and forward-thinking agencies will do their utmost to adapt their practices to the radically altered marketing landscape. Those that can adapt will thrive; those that can't or won't will wither and expire.

This new, rational marketplace may not replace the old school way of selling advertising with glitz, glamour, smoke-filled rooms, and three-martini lunches tomorrow, but despite the resistance from the broadcast establishment, the-times are-a-changing, and you have a lot more to lose by betting on the old model persisting than you do on the new model becoming the paradigm for building tomorrow's advertising marketplace.

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