Digital won’t “evaporate” ad dollars

A new survey of advertisers and agencies generated some scary headlines last week. Talk centered around the idea that as ad dollars shift to digital media and marketing, the overall pie will shrink. Will digital marketing really decimate overall ad spending the way craigslist and Google crushed classifieds and the Yellow Pages?

Calm down. Let’s review the case. While newspapers have it tough, other big ad markets like broadcast and cable TV and direct mail are still pretty healthy, and technologies like targeting and social media advertising could still increase the value — and thus spending — of both digital and traditional media.

Why there is concern

Besides the examples above, there are some valid arguments for the “digital evaporation” case:

  • Pricing. The old “analog dollars become digital dimes” meme is true right now, and it is particularly damaging to newspapers. Infinite inventory online kills pricing. The report that the Society of Digital Agencies (SoDA) based the survey on claims that “a dollar or euro lost from TV and print budgets becomes 20 cents of digital,” though it is not clear how it came to that exact figure.
  • The end of Wanamaker’s 50 percent. The famous quote runs, “Half of the money I spend on advertising is wasted; the trouble is, I don’t know which half.” Even with never-ending arguments over digital measurement, there is no question that pay-per-click pricing is tremendously efficient for direct marketing, and auction-based pricing for search and display ads eliminates much of traditional media’s wasted spending.
  • Ad networks. Ad networks from Google, AOL, ValueClick and others make it easy for advertisers to reach a big audience cheaply (each can reach over 80 percent of the U.S. online population, according to comScore) compared with print and television. While they enable web media companies to sell otherwise unsold remnant inventory, they contribute to overall pricing pressure. Ad networks bring a pricing transparency that could do to ad spending what Expedia and Google did to the travel industry.

Reasons to be cheerful

But don’t panic just yet. First of all, there is only anecdotal evidence of budget shift. Overall ad spending has continued to grow throughout the rise of online. In the SoDA survey, more advertisers said that in 2012 traditional media spending would shrink (33 percent) than grow (22 percent), but the survey didn’t weight those responses for their actual dollar spending. And respondents also said they would increase (50 percent) rather than decrease digital spending (16 percent), again without weighting. Overall spending might go up; you can’t tell from that. And in fact reputable ad forecasters expect overall ad spending growth this year, with sluggishness attributed to the economy rather than digital shifts.

Call me an optimist, but I still believe in some as-yet-undelivered technology promise. Those digital ad efficiencies and networks covered above also accommodate better ad targeting. Couple that efficiency with auctions and target via behavioral and psychographic audience characteristics, and prices will actually go up. Advertisers and agencies I have worked with — including Cisco, Procter & Gamble and Intercontinental Hotels Group — will be happy to pay a little more for provable, better results in terms of brand lift, increased trial and better direct marketing conversion. A premium of 10–20 percent isn’t beyond the realm of possibility.

Yes, cable TV pricing is lower than broadcast, even though it is somewhat better targeted. But cable TV “targeting” today is contextual — based on content — and based on very simple demographics. That is nothing compared to what digital can deliver, and those digital technologies will gradually migrate to television. What is holding back spending is inertia, conservative agency buyers and a lack of experience in that kind of planning. But Google, digital buyers and direct marketers are gaining exposure at agencies and marketers. It is just a matter of time.

Social technologies also hold great promise. Underline “promise.” Facebook is the biggest social game in town, but it is surprisingly conservative in its advertising experimentation, relying mostly on cheap inventory for direct marketing. Beacon backfired, and now Facebook seems twice shy and overly concerned with user reaction. However, it might have to accelerate advertising with a looming IPO and rumors of first-quarter shortfalls.

Ultimately, integrating social elements with traditional media advertising will lead to increased spending. Advertisers will also pay more to amplify marketing messages via fans and influencers. Brand advertisers I have worked with like IBM and P&G are definitely intrigued with the two-way engagement social media can deliver, even as marketers use social technologies to save money on things like market research and customer service. Not all incremental social spending will go to media companies. They need to build out their own services, improve their analytics and develop agency partnerships to get their fair share. But not all the cost savings will come out of their hides, either.

Question of the week

Would you pay more for better advertising?