Advertisers look for ways to follow consumers

The year was 1994. Jonathan Nelson, then 27, was huddled round a computer in the San Francisco offices of HotWired as a team prepared to push the button on the world’s first website featuring both original content and ads.

Bright pink cables were strung through the ceiling to his offices on the floor above, providing internet access to his hot digital marketing start-up Organic. The ad agency, which he had founded the year before, had designed half of the then tech-savvy, now rudimentary, banner advertisements featured on the original HotWired site for marketers, including telecom company AT&T and carmaker Volvo. The team was exhausted, having put in countless all-nighters to make the technologies work. The excitement in the room was palpable as the site went live, ushering in a vast digital transformation that continues to upend today’s $518bn advertising and media industries.

Fast forward two decades. Mr Nelson now works as chief executive of digital at Omnicom, one of the world’s largest advertising and communications companies. While marketers have shifted nearly a fifth of their budgets to digital outlets and largely believe in the value of online advertising, crucial challenges remain that will shape the next generation of media, when the divide between digital and traditional is blurred.

“It’s the calm in the eye of the hurricane,” says Mr Nelson. “You know the winds around you are swirling, and the times are changing.”

The pace of change is both exhilarating and exhausting. Advertisers are sifting through a proliferation of data and technologies that are making a reality of the promise of targeting the right ad to the right person at the right time, whether those ads appear on the web, a mobile phone, a billboard, in store or on television.

Despite the ability to measure each click that an ad generates, marketers still are challenged to understand how digital ads, especially those on social media, translate into a change in perception of their brand or sales of their product.

Meanwhile, marketers are also figuring out how to crack the code on a new era of crafting digital stories. The rise of social media, combined with a surge of internet-connected televisions and digital video viewing, are providing a new creative palette for commercials. The explosion of smartphones is leaving media companies and advertisers alike struggling to figure out how to pitch to consumers on the matchbox-sized screens.

“Back in 2000, banner ads were the big thing. That is where the money would go, and click through rates were the focus. Now, a lot of that stuff is being done by machines,” says Bob Lord, global chief executive of Publicis’ Razorfish digital advertising group.

“Where we are growing the most in our business is the next generation of story telling.”

Indeed, the obituary for the television ad industry was written years ago but the rise of social media, coupled with the development of new technologies, is granting the $205bn business a new lease on life.

“I don’t want you to think that television is going to lose here,” says Laura Desmond, global chief executive officer of Publicis’ Starcom MediaVest Group, whose clients include Procter & Gamble, Samsung and Walmart. “Screens that can allow more relevant messaging, based on more personalised data will win.”

Marketers develop sophisticated systems to target television commercials to particular consumers based on who is likely to be interested in their product. Think dog food ads for dog owners and nappy ads for parents of a newborn.

Advertisers increasingly tap into the proliferation of social media data to help determine the videos, graphics, pictures and other content that they create. The goal: to understand the messages that will best resonate with a target audience and make it easy for people to share those messages with their social networks, catapulting the brand to the centre of digital chatter.

“In the last 50 years, we have been working in black and white,” says Mr Lord. “What technology does is it brings you new talent and it brings you into colour.”

Samsung worked with Networked Insights, a social media analytics company, to help design its much talked-about campaign for its Galaxy S III Android mobile phone.

A Networked Insights team followed social media for critiques on the iPhone5 as Tim Cook, Apple’s chief executive, announced its launch. Copywriters instantly worked the comments into a series of acclaimed print, digital and television ads that Samsung credits with helping to boost its market share.

Marketing executives say that, without doubt, social media have emerged as a crucial and valuable new tool for understanding consumer sentiment and communicating with customers.

What they are still seeking to understand is exactly where social media should fit into their broader ad budgets, where television and print still compete for valuable resources.

Previously, Facebook focused its sales pitch on the small but growing portion of budgets that marketers spent on social media. Now, with an audience of more than 1bn, the social network sees itself as being part of mass media.

That puts it in direct competition with television, where marketers still spend the largest portion of their ad dollars.

“The biggest challenge is making sure that we do not have a conversation that is solely focused on a social media budget, but that we actually are having the right conversations at the right levels as Facebook as a brand-building platform,” says Carolyn Everson, Facebook’s vice-president of global marketing solutions.

The quick rise of new digital ad players increases the competition for some of the companies that have long dominated the industry. Google faces a wave of new competition for ad dollars in the $48bn search advertising business, from players ranging from Facebook to Amazon.

Some new media are wildly popular among consumers but have yet to develop sustainable ad models. Mobile media is expected to capture more than 20 per cent of media consumption in the next five years, but just a minuscule portion of total advertising revenues.

A glut of advertising inventory is flooding the market at the same time as marketers raise questions over the value of mobile ads. As a result, ad rates are plummeting, causing concern for publishers.

Sleek Hollywood studios have emerged to produce high-quality online video content for a generation of viewers who are just as likely to watch content online as they are on television. Questions loom over whether the advertising dollars will follow. These vast changes are transforming the type of people who rule the advertising business. The 1960s era of three-martini lunches and “creatives” who ruled the advertising world depicted in the Mad Men television show is no more. It is being replaced with employees armed with data and schooled in technology. Marketers and advertising agencies struggle to compete with tech companies to recruit the next generation of talent.

Indeed, the change has only just begun. According to Omnicom’s Mr Nelson: “You are seeing the industry really shift fast right now, the budgets are moving really quickly to digital. But we’ve only just scratched the surface.”