Wednesday, 17 July 2013

The Disruption in Advertising Caused by Digital Media

Below are some key excerpts from a great article by Ben Elowitz found here.  I selected the key areas I found most compelling and share that with you below.

These are exciting times for advertising, and challenging times for magazine publishers.  As new technology and new forms of media are bringing advertisers new ways to reach audiences (including things like digital magazines), with far better targeting and measurement than ever before,  it’s truly a boom time for ad tech. The only bad news is that instead, this explosion of technology is exactly what’s going to make the advertising market contract from its current $500 billion size.

In the world of traditional marketing there is only a fuzzy link between what an advertiser pays and what the advertising is actually worth. Even today, most ad spend is nearly untraceable — television still gets the lion’s share, and it’s one of the least measurable and most expensive mediums.
The definition of advertising nirvana is meaningful measurement: Knowing not just how much advertising was delivered, but to whom and to what end.

Digital media promised deliverance with its rich data and constant monitoring, and on this promise waves of ad-tech startups have been born - each vying to fix inefficient ad spend with proprietary software -  they each hope to bite off a piece of the $500 billion advertising market.
The problem is that once they get that bite, they’ll find the new pie of advertising-made-efficient to be a comparatively meager meal.

This is the way disruption often works — new improvements don’t always equal bigger profits. Examples:
  • The Open Source movement in the late ’90s
  • The decimalization of the U.S. stock market
  • The digitization of the music industry.

With the explosion of digital media, ad space inventory is increasing quickly, while at the same time advertisers are making more focused and efficient buys than ever before. If that efficiency is working, then net fewer dollars need to be spent to drive better results. Great news for advertisers — but bad news for magazine publishers with inventory to sell. With CPMs seemingly lower all the time, a continuation of the trend toward efficient ad buys will mean a dramatic contraction of the advertising market.

If magazine publishers can take a lesson from the industries that have gone through disruption before us, it’s that the incumbents should have embraced the new business models much, much earlier. Publishers have no choice but to act now and get involved in inventing the next wave of advertising.

So how do you compete when your market is collapsing? -- Change the way you think about your market.

Yes, publishers sell space to advertisers. But advertisers want to buy results, not space. When media companies measure their monetizable assets, they tally up the display inventory they can sell, and the data that can boost an advertiser’s expected returns. But a publisher's assets are actually much more diverse. Publishers have:
  • Brand
    Build it right, and your brand represents a premium you can earn to separate yourself from the commodity you sell.
  • RelationshipsAudiences comes for original content in a magazine's signature style. Partner with advertisers to devise creative campaigns that are tailor-made to be knockout hits with their/your audience.
  • Custom Content
    In the past, magazine publisher's created content for the audience’s sake and then relied on advertisers to subsidize it. Today, advertisers are less willing to subsidize content — but they are more willing to pay for it in other ways.  Now that marketers are directly connected with their audiences via Facebook, Twitter and the like, those advertisers need something to say. Custom publishing of content sponsored by Advertisers is on the rise and a great, inexpensive, and effective way to deliver that content is via digital magazines.
  • Technology
    This doesn’t need to be the sole purview of the ad-tech startups. Publishers have sophisticated technology already to serve their audience.
  • Results
    As the universe gravitates toward complete trackability, the one sure-fire thing advertisers will keep paying for is results.
A new age of advertising is upon us, and while it may be a golden age in terms of technological advancements, it certainly won’t be one of abundance. The contraction of the advertising market will force publishers to get creative and add real value with new offerings of their own. The days of selling space and access to a general audience are over. But advertisers will always need great media brands to align themselves with — which is why the biggest opportunity for media companies is to combine new technology and new delivery formats (like digital magazines) with strong brands, and make that alignment more valuable than ever.

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