The Death March for Advertising

Jared Spool

July 31st, 2006

Last week, I had the opportunity to be a panel member at the Chicago Ad:Tech conference, a gathering of folks on the advertising side of the Internet. The panel I was on went well and received good press (though, I apparently wasn’t interesting enough to warrant a mention in the article describing it.)

However, the more interesting conversations came later when talking to some VC’s and investors who were looking for new investment opportunities. Things livened up when I mentioned how our research was showing that people are less and less accepting of advertising. And they got really wild when I shared how our research is convincing me that advertising’s days are numbered.

Traditionally, advertising was based on a foundation which turns out to be a house of cards. Since the first days of newspaper advertising, it’s been accepted by everyone that advertising is non-accountable. Advertising works, based on faith in the premise that if you put an ad in front of enough people enough times, they spend money. But everyone knows accepting the premise is hard. In fact, if you talk to anyone in the advertising business, they can recite the joke often attributed to Philadelphia merchant John Wannamaker: “I know half my advertising budget is wasted. The trouble is I don’t know which half.”

Except that it’s not a joke. And it’s likely it’s not half. In fact, I’d be willing to bet it’s more like 80%-90%. Trillions of dollars a year are spent on advertising and it’s been generally accepted that half of that money (and likely more) is doing no good.

What if you could actually find which dollars were going to be a waste before you spent them? That’s what’s happening in the world of advertising. New techniques for measuring the effectiveness of advertising (a movement cleverly called “accountability”) are appearing every day. On the Ad:Tech exhibit floor, dozens of companies had methods to track and measure whether every dollar spent on an ad turned into a sale. All of a sudden, we can now start to see which ads are working and which ones are waste. And, as we predicted, most of them are waste.

If you watch users interact with web sites containing advertising, you quickly notice how the users develop techniques to avoid looking at the ads. We’re not the only ones seeing this. Anybody who watches users with an eye tracker (this may be the one good use of them) on pages with advertising can see how users avoid looking at the ads. Others have seen how users even avoid looking at the innocuous Ad-sense ads that populate many sites.

This isn’t just on the Internet. People buy DVRs so they can skip ads on TV. They rent movies and TV show DVD collections to avoid sitting through ads. And now they download $1.99 shows from iTunes so they can watch a 1-hour show in 42 minutes.

So, with these new tools for accountability, we can see where the waste is happening. And, from what we’ve seen in our research, it’s happening practically everywhere.

What happens when accountability is discovered by the bean counters?

For years, those-whose-job-it-is-to-say-NO have been told to trust the premise. Since advertising was all there was, when you removed it, you saw revenues drop. So, it was easy to say, “OK, there must be something to it. I’ll trust the premise.” And they did.

But now, we have new tools. We have methods to say which ads are working and which ones aren’t doing anything. And we’ve realized advertising isn’t all there is.

So, what happens when those-whose-job-it-is-to-say-NO discover this? They’ll start saying No. “No, we won’t spend money on things that aren’t working.” And, eventually, I predict, “No, we won’t spend money on things we can’t measure.”

And that’s the day we bury advertising.

So, where will those trillions of dollars go? Into a better marketing investment, I believe. And that investment will be improving the customer experience.

If you look at any study in the last ten years about how people are influenced to make purchases, you’ll see the biggest contributor isn’t television or radio advertising. It’s not the animated ads that float across your screen when you’re trying to do something else. It’s not billboards or direct mail. It’s not celebrity endorsements or having a logo featured on a NASCAR race car.

It’s word of mouth. What other people say is the best influencer on purchases. If I’m your friend and I go on-and-on about how my TiVo has changed my life and how anyone who loves TV needs to own one of these devices, you start to take the idea of purchasing a TiVo seriously.

And what would make me go on-and-on about my TiVo? Not a great ad. Not a celebrity endorsement. But a great experience.

If I actually find the TiVo does change my life, I’m more likely to tell people about it. And the more people whose lives are changed, the more people are out there spreading the word of mouth.

Word of Mouth Marketing is huge right now. And, at the core of it, is a new premise: you have to give people something to talk about.

Netflix discovered this when they realized 93% of existing customers regularly evangelize their service. Why do Netflix customers love Netflix so much? Because of the total customer experience. A great experience is the best marketing investment they could’ve made. This is why Netflix now has twice the market cap of Blockbuster.

So, I believe advertising is going to die. (And I’m not the only one say this.) It’s only a matter of time. And with the rate of technology feeding the accountability movement, that time is getting closer fast.

9 Responses to “The Death March for Advertising”

  1. Mike Says:

    Jared,
    I’ve spent a couple of thousand hours over the last few years analysing website visitor behaviour and I totally agree with your analysis, except that I don’t think the situation will change very fast in the Internet space even though this is the most accountable and measurable of all advertising media.
    How many online ads are counted as viewed when they are blocked by an ad blocker? Yet advertisers still spend money on this.
    How many online ads are counted as served when a website visitor closes the ad down before it has even completely appeared on their screen? Yet advertisers still spend their money on this?
    How many online ads annoy website visitors and create a negative brand experience the opposite effect to that the advertiser intends? Yet advertisers still spend their money.
    How many companies undertake Search Engine Optimisation only to direct customers to useless or ineffective landing pages? Yet advertisers are spending increasing amounts of money on this activity.
    Internet Advertising is set to grow globally to $51.6 billion by 2010 at a rate of 18.1% (Source PricewaterhouseCoopers 2006).
    We live in a consumer world where black is marketed as white, the Emperor has no clothes and truth and logic have little place.
    I agree with you but I think you underestimate the timescale that will be involved.

  2. Marvin Says:

    Jared,

    If I agree with what you said, I see an interesting dilemma. It seems to me that services like Google adsense have provided developers with a tack on business model/revenue generator. With the death of advertising how do you see startups funding themselves in a world where users expect everything for free. Do you see a media startups building their own targeted ad engines ? Very few startups, especially of the media type, have found viability with a suscription service. Only a few notables come to mind like 37 signals, saleforce.com, etc.. and they seem to be oriented for business rather than personal use. I am very interested to hear your opinion on this. Keep up the great work, I look forward to your posts.

  3. Jared Spool Says:

    Marvin,

    I don’t believe the myth that users expect everything for free. I think HBO, the Wall Street Journal, Consumer Reports, and, yes, 37Signals have all proved, among others, that people will pay for quality content and services.

    People will pay for value. The trick is understanding what that value is.

    In the current world of advertising sponsorships of content, the content producer focuses less on the value to the consumer and, instead, focuses on delivering value to the advertiser. Sometimes, they can deliver that value by producing high-quality audiences for the advertisers. But, more times than not, they don’t.

    Since advertisers can’t tell if their spend is working for them, it wasn’t worth the effort to make something people really want. The result is advertiser-sponsored content bends to the mediocre.

    I think that if companies focus on delivering a great experience (which we know means having great content with a frustration-free delivery), we’ll see them have no trouble getting people to pay for it.

    Advertisers not required.

  4. David Armano Says:

    Jared. In spirit I agree as “advertising as we know it” may indeed die. But I prefer to use the word evolve. As it’s more accurate and realistic. I too was at ADtech (Digitas) and our panel talked about the value of providing a good experience. But we didn’t leave it at that—we got into some detail on the role that digital experience design will play in the lives of customers moving forward.

    Advertisers will need to learn the language of good design which leads to great experiences. This leads to people saying positive things (uhhhh, word of mouth anyone?). It’s why we talk about Trader Joe’s like they have liberated us from the opression of Supermarket mega chains.

    Advertising will adapt. Some individuals wont. Those will be the ones who die to use your analogy. The rest will evolve into a new kind of organism, much better equipped to thrive in the world of the enlightened, empowered customer.

  5. adaptive path » blog » blog archive » Advertising as a Differentiator for Online Experiences Says:

    [...] And that’s what people do. Jared Spool, among others, has been talking and writing about the Death March for Advertising and how research shows that web site visitors quickly develop techniques to avoid looking at ads. It’s not enough to make online ads contextually relevant. Google has done a decent job with that; and people have learned to ignore them. [...]

  6. Indirect Manipulation » Blog Archive » Evidence of Autumn Says:

    [...] Armano also points to this interesting article concerning the end of advertising. Jared Spool feels that the day is coming when client organizations will simply stop paying for solutions whose results cannot be measured. In fact, he feels the very premise of modern advertising is flawed by antiquated thinking: Since the first days of newspaper advertising, it’s been accepted by everyone that advertising is non-accountable. Advertising works, based on faith in the premise that if you put an ad in front of enough people enough times, they spend money. But everyone knows accepting the premise is hard. In fact, if you talk to anyone in the advertising business, they can recite the joke often attributed to Philadelphia merchant John Wannamaker: “I know half my advertising budget is wasted. The trouble is I don’t know which half.” [...]

  7. The Dock: Login Says:

    [...] [...]

  8. anthillz » Blog Archive » links for 2006-08-31 Says:

    [...] The Death March for Advertising (tags: advertising marketing culture) [...]

  9. Phil Says:

    This is simply the best article I’ve read on the Net in quite some time.

    It would take a book to express my full reaction, but let’s skip all that, and just let me say thanks to the author for an inspiring, thoughtful piece that helps renew my enthusisam for the world I work in.

    Sure, none of us can know exactly how this will play out, but you are so on the right track.

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