There’s enough reporting around the growth of digital ad spend to fill volumes. Every quarter, another publication fusses about how much money is or isn’t making its way into Internet advertising.
I’d posit that we’re still early in this sequence and that real investment into digital ads is just beginning. But to understand the future of digital advertising, you first need to understand how it’s different from TV advertising.
Understanding advertising goals
Anyone and everyone who works in advertising knows the famous John Wanamaker adage:
“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”
Marketers are always looking for efficiency in their media spend, but here’s the funny thing about that — TV has the lion’s share of advertising dollars in the US, even though measuring the effectiveness of a television commercial is a murky practice at best. The runner-up is Internet advertising, which is extremely effective at measurement and tracking. The values of these different types of ads aren’t directly comparable; it’s more illuminating to look at their qualitative merits.
TV ads are used for their branding effect. The traditional 30-second TV spot is focused on establishing a brand that will influence a viewer’s purchase behavior. A 17-year-old may not be able to buy a BMW now, but when they have to choose between Mercedes and BMW in the future, these ads may tilt their decision.
Digital advertising is focused on direct response initiatives. Consider a search ad or banner ad on the Internet—formats that account for 79% of digital ad spend on desktop and mobile. An advertiser pays only when a user clicks, and the path of the user can be tracked to the precise moment of conversion. Many of these will ask you if you want to trim your belly fat, or take a diet pill, or buy a laptop; in other words, they’re trying to make you take action immediately.
So given the two options, why don’t marketers shift more of their budgets to digital advertising, where the return on investment is directly measurable? It’s true that targeting and tracking is great, but buying on channels (ESPN, FX) will get you the right audience with less work. It’s also true that scale is much easier to measure on TV. Everyone can agree that banner ads have never been effective at spreading brand messages. But it really comes down to one simple fact:
When marketers don’t do brand advertising, they lose sales.
TV’s shrinking share of ad dollars
One curious tidbit about advertising in the US is how it maps directly to GDP. Bloomberg details the following:
Looking at data since the 1920s, the U.S. advertising industry has always been about 1 percent of U.S. GDP. It’s surprisingly consistent, mostly tracking between 1 percent and 1.4 percent — and averaging 1.29 percent.
What does this mean for companies looking to grab advertising budgets?
That means the only way to expand in this business is to steal share. “Everything is a share game,” says Goldstein, as declines in older media give way to growth in newer media. It has been a continuous trend from the beginning.
Now consider how the share of ad budgets for different mediums has evolved:
Just as video killed the radio star, the same shift is happening from TV to digital. Nielsen reports that users of all ages are increasingly ditching traditional TV programming and shifting their time to digital media. Nearly all the analysis focuses on the growth of the digital ad market in number of dollars spent, but that’s missing the forest for the trees.
What matters is not the absolute amount of spend, but the ratio of consumer attention.
The US has spent the last few decades fiercely glued to the TV, so advertiser dollars have followed—after all, branded messages are only useful if there’s an audience to receive them.
As the Internet eclipses TV in consumer attention, the advertising budgets will follow.
The future of digital advertising
Until very recently, digital ads were sold on the strength of advanced targeting and accurate measurement—finding the right audience, determining the conversion path of a user, and optimizing efficiency. Since the advent of online advertising, ad tech companies have competed tirelessly among each other for direct response budgets. Many ad tech companies have since tried to branch out and capture branding budgets, but none have been successful at scale.
However, as users spend less and less time on TV, digital ads won’t be restricted to direct response campaigns; soon, they’ll begin absorbing brand advertising budgets that previously went to television buys. Brand advertisers need to reach their audience, and if their audience is on their phones and tablets and computers all day, then that’s where their money will go.
Unfortunately, there’s still a lot of work to be done on digital ad formats. Banner ads and search ads have been unsuccessful at branding for years, and the experience has only gotten worse with the rise of mobile computing. In fact, display ads are so terrible on mobile that Xaxis had to invent a new ad to stop accidental clicks.
An Internet-capable, branding-friendly ad format looks very similar to the TV model today — immersive content wells with integrated placements for ads. Facebook’s News Feed ads, Twitter’s Promoted Tweets, Snapchat’s Discover product, and Buzzfeed’s sponsored editorial have all proven to be drastically more effective than a banner ad, both in user engagement and in the ability to tell a story. These have become known as native ads.
An ever-increasing number of companies are utilizing native advertising effectively on the Internet, and as consumers spend an ever-increasing amount of time online, brands will have no choice but to have their ads follow.
Ultimately, brand advertising as a concept is here to stay; what will slowly die is TV’s dominance over it. Just as the radio and newspaper mediums saw their shares of the advertising bucket decline with the introduction of television, it’s high time that TV made way for the Internet.
The ad industry is still early on both of these trends, but the outcome is inevitable. If there’s only momentum from one factor — either native ads or shifting consumer attention — the future of the advertising world looks drastically different. But there’s positive indicators on both sides that the re-birth of brand advertising on the Internet is guaranteed.