Advertising industry faces online challenge
Agencies need to find a way to tap growing market of internet users not responsive to traditional methods, writes Neil Runcieman

Tech-savvy young people such as this New York Commuter using her BlackBerry are not being addressed by conventional above-the-line advertising methods. Photo: Bloomberg

According to ACNielsen's recent Global Index report on online activity worldwide between December 2007 and December last year, the word most closely associated with advertising in English-language online social media conversations is “false”.

This represents arguably the biggest single issue facing the advertising industry today. The recession is denting revenues and shaving profits, particularly in the traditional cash cow of media buying, but by far the greater challenge is how to deal with the challenge of “Marketing 2.0” – selling brands and products in the world of user-generated and viral content that now accounts for at least 10 per cent of all online activity. In other words, these are the social networks, of which the two best known in the English-speaking world are Facebook and MySpace.

To give an idea of just how great the explosion in social networking has been, Nielsen's research estimates that global online activity (including e-mails, visits to websites and searches) grew by 18 per cent in the year. Time spent on Facebook rose a massive 566 per cent to 20.5 billion minutes (this excludes the mainland, where local equivalents such as 51.com and xiaonei dominate with more than 20 million unique browser visits weekly).

Just as significantly, the greatest growth was in older age groups, the 35-49 and even 50-64 demographics who control the most disposable income. More than half of all British internet users, for example (and about 85 per cent of 18-24 year-olds) use social networks.

Many of the younger users – Generation Y – access all their entertainment content online. They rarely watch television, do not buy newspapers are unlikely to respond favourably to snail-mail direct marketing. And, to cap it all, they think advertising is false. What can today's “Mad Men” do?

To compound the ad industry's dilemma, the one social networking site that has been successfully monetized, MySpace, is fast losing ground to the one that hasn't, Facebook. Why? Because users prefer Facebook's simple, open, interface and the fact that it is not heavily populated with advertising messages. The only good news for advertisers is that Facebook, hugely popular but also hugely loss-making, needs to address this issue just as urgently as they do.

Dominic Powers, senior vice-president for Asia-Pacific at Epsilon, a global marketing agency that deals exclusively in the online domain, explained that traditional advertising was out of sync with online user habits because it was a “push” rather than “two-way” or conversation model.

“Online content is increasingly user-generated and conventional advertising is struggling to adapt to that. It's hard to create a pure brand experience when the online community can share criticisms of the product, compare it with others or even choose to ignore its presence totally. Word of mouth is ultimately much more valuable than David Beckham's endorsement,” Mr. Powers said.

He is no doubt, however, that online users are just as keen to shop and be targeted by advertising if it is done in the right way, which means having the user's permission to advertise and staying in tune with the online domain's highly transparent and democratic environment.

“Online users have no objection to advertising. It's unwanted or invasive content that they hate. When we run permission –based email marketing campaigns, we find that fro consumer packaged goods, more than 90 per cent of respondents download or print coupons. More than 80 percent click on a link to learn more and 66 per cent order product samples. For retailers, 56 per cent of recipients of permission-based e-mails are more likely to make purchases from that retailer. It's the same in all areas. And we know that just about 100 per cent of all users check out significant purchases, such as cars, online before they make a commitment.”

Nobody believes that the traditional forms of above-the-line advertising, the hero campaigns and celebrity endorsements, are dead or even dying – just that they are showing their age and need rethinking. Where previously awards for creative design and Hollywood production values were the benchmark of advertising success, now the priority is the number of hits for chips that gain their frame virally on YouTube, Facebook and MySpace.

Cadbury's famous Gorilla ad was made for TV but has been viewed more than 10 million times on YouTube. The annual ritual of top-dollar advertising for huge brands during the US Superbowl TV broadcast is now just as significant for the online reviews those ads receive and the links to instantly uploaded clips in hundreds of blogs worldwide.

And if anyone doubts the potentially huge impact of online advertising on optimizing relationships with the customer database, look no further than the recent US presidential election campaign. More than 10 million people signed up to receive regular e-mail updates about Barrack Obama and his progress. His opponent John McCain had nothing to match it, and it hurt.

The major traditional advertising agencies still seem a long way from finding a successful compromise between top-down brand promotion and the new world of user-controlled and user-generated content. There is no doubt, however, that the recession and its impact on marketing budgets worldwide will concentrate their minds.

Mr. Powers said that the issue was hardly a new one, but believed that the internet had fixed advertising directly in the crosshairs of financial accountability.

“In the late 19th century, a department store owner named John Wanamaker stated the immortal line: ‘Half the money I spend on advertising is wasted; the trouble is, I don't know which half.' The problem is, in the traditional world of advertising, little has changed,” he said.

“Advertisers cannot afford to throw away that 50 per cent of their budget. The internet, with its detailed measurability, instant user response, viral opportunities and zero print and mailing costs, offers them ways to save it and to improve their relationships with their customers.”

SCMP
15th April, 2009

Read about the other series