Internet Advertising: Death Knell or

Rebirth for the Advertising Industry?

Senior Thesis 2009
Nathan ordon
Advisors: A!y To!as and "arolyn #oni$eld
Introduction
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%u&h &on'e&ture e(ists )ithin the A!eri&an advertising
&o!!unity as to the i!*li&ations of the gro)ing *o*ularity of Internet
advertising for the &ountry+s traditional advertising agen&ies, So!e
insist that Internet advertising is *oised to set advertising on its ear-
resulting in a dra!ati& de&line in the fortunes of traditional !ass
!edia.oriented ad $r!s and &ausing the e(tin&tion of those less able
or less )illing to ada*t, /thers insist that the sheer o!ni*resen&e and
dee* relationshi*s of the traditional $r!s )ill allo) the! to )ithstand
any threat- and they )ill all $nd a )ay to be *ro$table in the Internet
future, %any sit on the fen&e- )aiting to *la&e their bets as o0.line and
on.line agen&ies battle it out during these &hallenging e&ono!i& ti!es,
This *a*er is ai!ed at &larifying the bases of these argu!ents by
*roviding veri$able fa&ts and $gures to su**ort !ore ob'e&tive
evaluation of the !any *ossible s&enarios and $nally to *osit a li1ely
future state for the advertising industry- based on a thorough analysis
of all available and relevant infor!ation,
The *ro$le of the 2S advertising industry fro! 3990 through
2004 highlights !any 1ey &hanges- gro)th rates- and trends that
*ortend &hanges &aused by the e!ergen&e of Internet advertising as a
ne) !ediu!, These in&lude Internet5s re&ord revenues in 2004 of over
623 billion- )ell beyond that of both &able television and radio
advertising, Through intervie)s and &o!!entary fro! industry
e(e&utives I )as able to understand at the hu!an level ho) the
22
industry has &hanged- is &hanging and still !ust &hange in light of the
Internet, %any of the e(e&utives agreed that the Internet is no)
another !ass !edia vehi&le and those &o!*anies that ignore it si!*ly
)ill not survive in the digital )orld, 7i1e)ise- agen&ies that only fo&us
on digital )ill also fail- as trends in the industry today are *ointing
to)ard a !ore integrated- full servi&e agen&y being the )inner in the
future, %any agree that this is the !ost li1ely future for the industry-
and the fa&ts and $gures fro! *rior resear&h su**ort this s&enario,
Section I: The Beginning
The late 3980s and early 3940s )ere *eriods of great
advan&e!ent and develo*!ent for )hat )e no) 1no) as the Internet,
The $rst !a'or use of &o!*uter net)or1s in the 2nited States )as by
the 2S Defense De*art!ent- )ho used their series of inter&onne&ted
&o!*uters to trans!it infor!ation *ertinent to their business, It )as
not until the !id.3940s that a syste! &alled 2senet )as begun, This
)as a bulletin board ty*e syste! that allo)ed users of the net)or1 to
*ost infor!ation a&&essible to others on the net)or1, It )as around
this ti!e that !a'or 2S universities )ere inter&onne&ted and used the
net)or1 to trans!it e(*eri!ental and edu&ational data, 9ith the
introdu&tion of *ersonal &o!*uters in the late 3940s- individuals
outside the Defense De*art!ent and the university &o!!unity began
to set u* their o)n server net)or1s and for! their o)n s!all
&o!!unities- &o!*lete )ith &hat roo!s- starting in the late 39:0s, At
33
this *oint the Internet and its nu!ber of users )ere gro)ing
e(*onentially- and in 3993- Ti! #erners.7ee introdu&ed )hat )e no)
1no) as the 9orld 9ide 9eb, This )as a standard lin1ed infor!ation
syste! a&&essible a&ross the range of di0erent &o!*uters in use, 9ith
the )eb &a!e the $rst )eb bro)ser in 399;- allo)ing users to a&&ess
the gro)ing nu!ber of )eb *ages and sho**ing sites fro! !any
lo&ations, "o!*anies su&h as %i&rosoft- Nets&a*e- and A/7 o0ered
their o)n bro)sers- further in&reasing the *ubli&5s a&&ess to the
Internet <3=, 9ith the *ubli& 'oining the Internet revolution in droves-
&o!*anies- both on and o0.line- sa) the o**ortunity to advertise their
*rodu&ts and servi&es on the ne) !ediu! at very little &ost,
"o!*anies sa) the in&redible *otential for advertise!ent rea&h at a
very lo) ris1 and !any de&ided to e(*lore online advertising
o**ortunities,
1996-1998
The e(*losion of interest in online advertising brought about the
in&e*tion of the Internet Advertising #ureau <IA#= in 3998, This
organi>ation )as founded on the *rin&i*le of being ?dedi&ated to the
gro)th of the intera&tive advertising !ar1et*la&e- of intera&tive5s
share of total !ar1eting s*end- and of its !e!bers5 share of total
!ar1eting s*end@ <2=, Sin&e 3998- the IA#- )hi&h today is !ade u* of
;4A to* !edia and te&hnology &o!*anies- has been tra&1ing global
Internet ad s*ending- re&ording trends- and revenues- and serving as a
44
&enter for standards- legal rights- and a bridge bet)een agen&ies and
&usto!ers, Also- every Buarter- and &ul!inating )ith an annual edition-
the IA# generates a re*ort of their $ndings )hi&h is available to the
*ubli&,
In 3998 the IA# re*orted a total annual s*ending $gure of 6284
!illion on Internet advertising, S*ending in&reases of over CAD
Buarter.to.Buarter indi&ated ?Ethe gro)ing role advertising revenue is
*laying in su**orting the Internet as it evolves into a true &onsu!er
!ediu!-F < ;=, Throughout 3994- the trends &ontinued- )ith the 3994
total dollar a!ount s*ent on Internet advertising totaling over 6900
!illion, These nu!bers *ut the Internet as a !ediu! slightly ahead of
basi& television for the $rst ti!e <C=, The 399: Internet s*ending
nu!bers &ontinued to gro)- )ith over 63,9 billion dollars in revenues,
FStrong revenue gro)th led by &onsu!er advertisers- and &ou*led )ith
seasonality si!ilar to traditional advertising- suggests the Internet is
in&reasingly being fa&tored into advertising budgets- and that the
funda!entals are in *la&e for &ontinued industry gro)th-F <A=,
1999
After 399:- the IA# began follo)ing not only revenue- but also
!ore te&hni&al !etri&s su&h as ty*es of advertise!ents *ur&hased-
&on&entration of revenues a!ong *ublishers- and *ay!ent s&he!es, It
also &ontinued to tra&1 )hi&h industries )ere utili>ing the online
!ediu! !ore than others, The 3999 ad revenues doubled again fro!
55
399:- rea&hing a total of 6C,8 billion- an in&rease of over 3C0 *er&ent
over 399:, The leading industry ad *ur&hasers )ere &onsu!er goods
*rodu&ers- follo)ed by $nan&ial servi&es, These t)o industries
a&&ounted for ;3D and 34D of s*ending- res*e&tively <8=,
The IA# re*orted that the !ost *o*ular advertising vehi&les on
the Internet )ere banners and s*onsorshi*s- )hi&h together a&&ounted
for over 4AD of the 63,4 billion of revenues in the fourth Buarter of
3999 <8=, #anner ads are s!all re&tangles lo&ated on the to*- botto!
or sides of a )eb *age that &onsu!ers &an &li&1 on and be redire&ted
to the site of the advertiser5s &hoi&e, S*onsorshi*s di0er fro! banners
in that advertisers sign long ter! agree!ents )ith )eb *ages to
&onstantly dis*lay their logo- but si!ilar to banners- &onsu!ers &an
&li&1 on the logo and be dire&ted to that &o!*any5s )ebsite,
Also in the annual re*ort )as an e(*lanation of the high
&on&entration of the *ublishers to )hi&h the advertising revenues )ere
going, It )as re*orted that the to* 30 *ublishers- !ainly *ortals li1e
GahooH and A/7- a&&ounted for over 40D of all revenues- and the to*
A0 *ublishers a&&ounted for over 90D of revenues, 2S9ebI"KS- the
to* intera&tive advertising agen&y in 3999 as re*orted by AdAge-
a&&ounted for 632A !illion dollars of revenue in 399: <4=,
/ver half of the to* *ublishers used a hybrid *ri&ing s&he!e to
&olle&t their *ay!ents- )hi&h )ere largely &ash deals, A hybrid *ri&ing
s&he!e is one in )hi&h t)o *ri&ing !odels are used si!ultaneously
66
su&h as "J%- or &ost *er 3-000 i!*ressions- and a *erfor!an&e based
*ri&ing !odel su&h as &ost *er &li&1 or &ost *er a&tion, The hybrid
!odels )ere used to ?ease advertiser &on&erns about the e0e&tiveness
of online advertising@ <:=, #e&ause the deals )ere largely &ash
transa&tions- *a&1age deals <a *ortion of a !edia buy that !ay in&lude
other traditional !edia su&h as TK or radio or *rint= a&&ounted for only
one *er&ent of revenues in 2000, This signals a la&1 of integration of
online and traditional &a!*aigns- a trend in 2000,
Rounding out the re*ort- the IA# &harted the !ar1et share of all
!a'or advertising !ediu!s in the 2S, The Ledgling Internet )as lo) on
the list )ith about half the revenue of &able TK advertising- and only
about t)o *er&ent of the 623: billion dollar advertising !ar1et <8=,
2000
ro)th of Internet <intera&tive= advertising &ontinued in 2000-
)ith total revenues to**ing out at 6:,2 billion- a 4: *er&ent in&rease
over 3999, Although the gro)th )as steady over the four Buarters of
2000- the total annual *er&entage gro)th )as !u&h less than the
399:.3999 ga*- indi&ating a slo)ing gro)th rate overall, ?As our
<Internet advertising5s= base gets bigger and bigger- the days of double
and tri*le digit gro)th are gone- as they )ould be for any industry that
gre) at the rate that the Internet did-@ said Ri&h 7eMurgy- 2000 &hair of
the IA#, 2000 )as the $rst year Internet ad revenues did not double
over the *revious year,
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The &on&entration of ad revenues re!ained at the to* during
2000- &ontinuing the trend fro! 3999, ?7i1e !ost ad.su**orted !edia-
this advertising !ediu! is not a level *laying $eld and the big
&ontinue to get bigger-@ said To! Nyland- Ne) %edia "hair at
Jri&e)aterhouse"oo*ers <9=, This )ould see! to indi&ate a gro)ing
barrier to entry for s!all digital $r!s,
/ne ne) develo*!ent in 2000 )as the gro)ing *o*ularity of
e!erging ad for!ats over banner advertise!ents, Although banners
still a&&ounted for C: *er&ent of s*ending- ne) for!ats not tra&1ed in
*revious years in&reased their !ar1et share, Key)ord sear&h-
&lassi$eds and ri&h !edia totaled 30 *er&ent of !ar1et share-
e(*laining *art of the : *er&ent year over year de&rease for banners,
Key)ord sear&h advertising &an be done in t)o )ays, The $rst-
*ay.*er.&li&1 <JJ"=- utili>es *rogra!s su&h as oogle Ad)ords- )hi&h
dis*lay &ertain advertise!ents )hen &ertain )ords are sear&hed, Mor
e(a!*le- if ?lu(ury@ )ere a 1ey )ord and %er&edes #en> held the
rights to that 1ey)ord <via negotiations )ith the *ortal=- every ti!e
?lu(ury@ )as sear&hed a %er&edes #en> hy*erlin1 )ould sho) u* in
the s*onsored se&tion of the results *age, Overy ti!e a s*onsored
result )as &li&1ed- the advertiser <%er&edes #en>= )ould *ay a *re.
deter!ined a!ount of !oney to the *rodu&er, Sear&h Ongine
/*ti!i>ation- the se&ond !a'or !ethod of sear&h !ar1eting- involves a
laborious *ro&ess of designing individual )eb *ages in su&h a )ay that
88
they )ould al)ays a**ear at the to* of the free results for a *arti&ular
sear&h, "lassi$eds are the online version of )hat a**ears in *rint
ne)s*a*ers,
Another ne) develo*!ent in 2000 )as the gro)ing *o*ularity of
straight *erfor!an&e *ri&ing over hybrid *ri&ing, Straight *erfor!an&e
*ri&ing si!*ly uses a "J% or &ost *er 3000 i!*ressions <*age vie)s= to
allo&ate &osts to the !ar1eter, Also in 2000- Internet ad revenues
a&&ounted for a**ro(i!ately ;,A *er&ent of total 2,S, ad s*end- u*
fro! a**ro(i!ately 2 *er&ent in 3999 <9=,
2001
2003 )as a !ilestone year for the intera&tive advertising
industry as revenues de&lined for the $rst ti!e in its short history,
Revenues fell 32,; *er&ent to 64,2 billion dollars- reLe&ting the overall
2,S, advertising industry5s de&line due to a slo)ing e&ono!y and a
te!*orary and voluntary sto**age in advertising follo)ing the events
of Se*te!ber 33
th
, Diversi$&ation a!ong ad for!ats &ontinued
ho)ever- )ith banners and s*onsorshi*s falling 32 *er&ent and 2
*er&ent- res*e&tively- and &lassi$eds and 1ey)ord sear&hes $lling the
s*a&e )ith gains of : *er&ent and ; *er&ent- res*e&tively <30=,
2002
2002 )as a *eriod of &ontinued de&line as the 2,S, e&ono!y )as
still re&overing fro! a dreadful 2003- and total revenues fell 3A *er&ent
year.over.year, No)ever- the third and fourth Buarter results *roved
99
favorable- *ointing to)ard a stronger 200;, The !ain strength of the
latter half of 2002 )as the in&rease in Jaid Sear&h as an advertising
for!at, This in&rease !ay be due to the ability of tra&1ing and
!easure!ent of the e0e&tiveness of this vehi&le over others be&ause-
?every &li&1 &an be tra&1ed to the resulting sale or sign.u*Eto seeE
)hat ele!ents of the &a!*aign are driving its su&&ess-@ <33=,
Although the s*ending re!ained &on&entrated )ith the to*
agen&ies in the industry- 2002 !ar1ed the $rst de&line in the
&on&entration- )ith the to* ten $r!s losing A *er&ent !ar1et share in
the fourth Buarter of 2002 &o!*ared )ith the fourth Buarter of 2003,
A&&ording to NielsenI NetRatings- those to* ten &o!*anies )ere
GahooH- A/7,&o!- %SN- i9on- Nets&a*e- "o!*uServe- OSJN,&o!-
%SN#"- The 9eather "hannel- and NetPero in the fourth Buarter of
2002 <32=,
"ontinued diversi$&ation a!ong ad for!ats left banners losing 4
*er&ent year Qover. year- and s*onsorshi*s falling shar*ly to 3:
*er&ent share, Sear&h )as the biggest )inner in 2002- )ith !ar1et
share in&reasing !ore than ; ti!es in 'ust one year,
As a *er&ent of total 2,S, advertising s*ending- /nline too1 a loss
for the third year in a ro)- $nishing at 'ust 2,A *er&ent <32=,
2003-2005
200; )as a turnaround year for the Internet advertising industry-
)ith revenues to**ing 64,; billion- a shar* in&rease fro! 20025s 68
10 10
billion, %u&h of this gro)th &a!e fro! the third and fourth Buarters-
)ith 63,: and 62,2 billion in revenues- res*e&tively, 200C &ontinued to
*rove strong for the industry- *osting re&ord revenues at 69,8 billion- a
39 *er&ent in&rease over the *revious re&ord- set in 2000, #oth 200;
and 200C sho)ed strongly for *aid sear&h and &lassi$ed listings- )ith
*aid sear&h a&&ounting for C0 *er&ent of revenues in 200C, ?The
revenue results re*orted for 200C &on$r! a very healthy environ!ent
for online advertising- for both dire&t !ar1eters see1ing i!!ediate
*erfor!an&e results- as )ell as brand advertisers loo1ing to &reate or
enhan&e an i!age- *rodu&t or servi&e@ said Jete Jetrus1y of
Jri&e)aterhouse"oo*ers, It is noted in the 200C re*ort that national
advertisers a&&ount for 9C *er&ent of online ad s*ending- &o!*ared to
lo&al advertisers5 8 *er&ent, Also- revenues &ontinued to re!ain
&on&entrated a!ong the to* ten $r!s )ho too1 over 40D of all
revenues in 200C <3;=,
In 200A- Internet ad revenues *osted re&ord results on&e again-
gaining a full ;0 *er&ent over 200C and ending at 632,A billion, Jaid
sear&h &ontinued to be the leading advertising vehi&le on line-
although it )as only u* one *er&ent fro! 200C, This signaled a slo)ing
diversi$&ation a!ong for!ats- *ossibly due to the in&reasing ability to
o*ti!i>e tra&1 e0e&tiveness of the sear&h for!at, #y the end of 200A-
the Internet as a !ediu! had gained a full A *er&ent of the overall 2,S,
advertising !ar1et- slightly belo) &onsu!er !aga>ines- but still
11 11
trailing other !a'or !ediu!s <ne)s*a*er- &able TK= by a large !argin
<3C=,
2006-2007
2008 and 2004 both sho)ed a &ontinued *a&e of aggressive
gro)th !u&h li1e in the 399:.2000 *eriod- )ith 2004 *osting the
fourth &onse&utive year of re&ord revenues at 623,2 billion, %any of
the sa!e trends &ontinued- )ith *aid sear&h leading the for!at )ar-
stagnant at C3 *er&ent- )ith dis*lay &o!ing u* se&ond at ;C *er&ent,
The to* ten $r!s lost 'ust one *er&ent of their revenue share-
re!aining &onstant )ith *revious years, The highlight of the 2008.
2004 *eriod )as the gain in 2S advertising !ar1et share by Internet
against other !a'or !ediu!s, Internet *assed both radio and &able TK
advertising for the $rst ti!e- but still trailed ne)s*a*er by a large
!argin <3A=,
Summary of Trend
The gro)th of the Internet and related ad s*end has been
in&redibly fast and &onstant, In the era of intense &onsu!eris! and
!ar1et &onsolidation- $r!s are &ontinually see1ing ne) )ays to rea&h
their &usto!ers, This is evident in the data *resented- )hi&h sho)s
!any trends *ointing to &ontinued digital gro)th in the future,
The gro)th in revenues indi&ates an i!*ortant trend in attitudes
to)ard the Internet, %ar1eters believe in the !ediu!, They believe
that it is truly a *la&e )here they &an get their !essage a&ross, This
12 12
belief is &o!*ounded by the fa&t that even during re&essions )hen
!any advertising budgets are tri!!ed do)n- digital is not the $rst to
go- as !ar1eters believe it is too i!*ortant to leave behind, That is
)here they believe their &usto!ers s*end their ti!e- !a1ing it the
best o**ortunity for &onta&t,
The Dot "o! boo! and bust *roved to be a turbulent ti!e for
the Internet in general- )ith start.u* retailers and agen&ies ali1e rising
and falling )ith regularity, No)ever- even during that re&essionary
*eriod- Internet ad s*ending did not falter as !u&h as traditional
&hannels on a *er&entage basis- and regained its gro)th !u&h faster,
The fourth Buarter of 2003 illustrates this, Although online ad revenues
fell 4,AD fro! the third Buarter- Net)or1 TK fell :,CD- !aga>ines fell
3;,4D- and &able television advertising fell an astonishing 3:,9D <30=,
These nu!bers *oint out the &on$den&e !ar1eters had in the !ediu!
over the traditional &hannels- and their )illingness to 1ee* their !oney
in the Internet *ool in ti!es of e&ono!i& hardshi* &onveyed their
*er&e*tion that the Internet *rovided !ore bang for the bu&1,
The trend a)ay fro! banner and s*onsorshi* advertising also
*oints out that !ar1eters are *aying intense attention to the Internet
and e(*loring ne) )ays of rea&hing &onsu!ers that are !ore easily
!easurable and !ore &ost eR&ient, ?It5s a**arent that !ar1eters see
intera&tive tools as a &riti&al &o!*onent to getting a !ore granular
understanding of &onsu!ers- their interests- needs and desires-@ <38=,
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These ?intera&tive tools@ do not involve ?advertising@ *er se- but !ore
of infor!ation see1ing and &usto!er feedba&1, ?iven the *er&eived
sense of anony!ity- *eo*le feel &o!fortable sharing everything-@ <38=,
9eblogs- or #logs- are )ebsites )here *eo*le ?*ost their thoughts-
&o!!ent on ea&h others5 thoughts- and !a1e &lai!s about SbrandsT-@
<38=,This is a signi$&ant &hannel for online &o!!uni&ationU Te&hnorati-
a blog analysis s*e&ialist- re*orted in 200: that it )as tra&1ing over
300 !illion blogs, Mor that reason- ?!any &o!*anies are re&ogni>ing
the !ar1eting *otentials of )eblogs-@ <34=, Another online &hannel
that !ar1eters and agen&ies are *aying attention to are so&ial net)or1
sites su&h as %yS*a&e- Ma&eboo1- and T)itter, These sites are
e(tre!ely *o*ular &onsu!er driven lo&ations )here ?*eo*le &onne&t
through &on&e*ts- ideas- values- and i&ons &reated and related to other
*eo*le though ele&troni& inter&hanges,,,@ <3:=, ?9here traditional )ord
of !outh is li!ited by the si>e of the so&ial net)or1- ?)ord of )eb@ &an
in&lude a so&ial net)or1 that s*ans the globe,@ Oven so!e &o!*anies
set u* unbranded so&ial net)or1s to *rovide a !eans of dire&t
&o!!uni&ation )ith &onsu!ers, Vohnson W Vohnson o*erates
#aby&enter,&o!- ?a *la&e )here !o!s &an gather and &hat )ithout
being surrounded by Vohnson W Vohnson.s*e&i$& branding !essages-@
said #ridgette Neller, She &ontinued- ?Ebe&ause it is basi&ally a
&o!!unity- so&ial net)or1ing ty*e of site and not a &o!!er&ially
driven site- they feel &o!fortable sharing )ith ea&h other and sharing
14 14
)ith us,@ <38= If these trends &ontinue- agen&ies- both traditional and
digital !ust a&Buire blogging and so&ial net)or1 e(*ertise in order to
satisfy their &lients in the e!erging arenas and survive in the digital
)orld, So!e signs *oint to the survival of traditional agen&ies- )ith
/gilvy Jubli& Relations 9orld)ide adding t)o senior leaders to its ;80
degree Digital InLuen&e rou* in 200:, #oth Kirginia %ira&le and
Adriana as&oigne are ?leaders in digital and )ord of !outh-@ and are
highly fa!iliar )ith so&ial net)or1 and blog !ar1eting <39=,
All ne) !ethods of &o!!uni&ating )ith the target &usto!er that
are &reated on the Internet only !a1e it !ore enti&ing for !ar1eters to
)ant their brands on the Internet, Oven today )e are still seeing
e!erging trends in the digital s*a&e- in&luding a !ove to !obile and
the !erging of TK and Kideo online, "onsu!ers &an no) see things
on&e only available on TK anyti!e- any*la&e they )ant, %ar1eters
)ant to be in those *la&es,
The Bui&1ly !ulti*lying digital agen&ies have develo*ed their
s*e&ialties dire&ted to)ard getting their &lients into the a&&elerating
digital s*a&e, The future is un&ertain in that industry *rofessionals are
not sure if traditional agen&ies su&h as Goung W Rubi&a!- 7eo #urnett-
and V, 9alter Tho!*son )ill be able to ada*t to the digital environ!ent
and &o!*ete )ith the u* and &o!ing digital *rofessionals,
!urrent State of the Indutry
15 15
Sin&e 39::- the global advertising industry has seen furious
&onsolidation- )ith the result today being 9JJ rou*- /!in&o! rou*-
Inter*ubli& rou*- and Jubli&is rou*e <the #ig Mour= having a
&o!bined 6;3 billion in revenues for 200A, These global advertising
giants o)n C0 of the to* A0 2S ad agen&ies, Throughout the 3990s-
agen&ies o)ned by the #ig Mour e(*anded their non.2S oR&es by
4,AD- )hile 2S based oR&es only sa) 3,AD gro)th, 9ith lo) barriers
to entry- the rise of boutiBue digital sho*s and highly &reative start.u*s
intensi$ed- and !ar1eters )ere turning to the less e(*ensive and
arguably !ore e0e&tive !eans of advertising on the Internet, Mir!s
su&h as "o&a."ola left their traditional agen&ies behind for the s!aller
digital and intera&tive s*e&ialists- )hi&h s*ar1ed a ne) revolution of
&onsolidation, 9JJ- seeing ?a need to be&o!e a 1ey *layer in the
Internet !ar1et-@ a&Buired Goung W Rubi&a! for al!ost 6A billion <20=,
Sin&e the a&Buisition of Goung and Rubi&a! in 2000- 9JJ rou*
has sna**ed u* s!all agen&ies all around the )orld- !any )ith a fo&us
in digital, In 2000 alone- 9JJ and its subsidiaries a&Buired o Dire&t
%ar1eting in "anada <database !ar1eting=- Toni& ;80 <digital
#randing=- Jre!iXre rou*- Resear&h Jartners and Strategi& Nori>ons
<23=,
In addition to those full *ur&hases- 9JJ invested at least a 30D
sta1e in seven digital agen&ies in an atte!*t to broaden the digital
tools available to its )holly o)ned &o!*anies, O(a!*les in&lude:
16 16
%eta*a&1- )hi&h o0ers solutions for Internet retailersU I!agine- )hi&h
o0ers &o!!uni&ation soft)are *rodu&tsU Red Sheri0- )hi&h is an
Internet.based audien&e !easure!ent and !ar1et resear&h &o!*anyU
and S*ydre 7abs- )hi&h s*e&iali>es in e.business targeting 7atin
A!eri&a and the 2S Nis*ani& !ar1et <23=,
The other three holding &o!*anies have done si!ilarly-
&o!*eting for o)nershi* of start. u* digital agen&ies, In 200A-
/!ni&o! grou* a&Buired i*shH- a San Mran&is&o.based !obile
!ar1eting servi&es &o!*any- saying- Fi*shH+s ability to su&&essfully
i!*le!ent !obile !ar1eting &a!*aigns for a broad range of &lients
a&ross industries )ill give us a leadershi* *osition in the !ar1et*la&e-F
<22=, %irroring the strategy- Jubli&is a&Buired Digitas- a digital
!ar1eting servi&es &o!*any- in 2008, ?9e have been see1ing to !a1e
an i!*ortant strategi& a&Buisition )hi&h &ould really boost our
*resen&e in the digital !ar1et*la&e, The a&Buisition of Digitas In&,
allo)s us to i!!ediately attain our goal of being one ste* &loser to the
future,@ Mollo)ing this strategi& a&Buisition- digital and intera&tive
o*erations re*resented a**ro(i!ately 3AD of total revenues for
Jubli&is rou*e <2;=, #y a&Buiring agen&ies )ith digital s*e&ialties- the
larger traditional agen&ies then had a&&ess to digital resour&es through
a &o!!on *arent &o!*any- !u&h to the bene$t of their &lients,
This digital &onsolidation trend is the only real eviden&e to be
had &on&erning the survival of larger agen&ies in a digital age, Sin&e
17 17
the !a'or buyouts by the #ig Mour- the revenues have seen an u*)ard
trend- indi&ating the a&Buisitions of the s!aller &o!*anies has been
su&&essful in 1ee*ing the traditional !edia &o!*anies aLoat, Mro!
200; to 2004- 9JJ grou* sa) billings in&rease fro! 628,4 billion to
6CA,C billion- )hile revenues in&reased fro! 6A,9 billion to 6:,9 billion,
"on&urrently- the nu!ber of e!*loyees gre) by nearly 8AD- reLe&ting
both gro)ing *ayrolls in traditional agen&ies and the gro)ing nu!ber
and s&o*e of digital a&Buisitions <2C=, 9JJ5s dire&t &o!*etitors sho)ed
the sa!e trends- )ith /!ni&o! rou*5s revenues in&reasing fro! 6:,8
billion to 632,4 billion <2A=,
"rior #eearch
The in&redible gro)th and *er&eived i!*ortan&e of the Internet
by agen&ies has *ro!*ted a very strong rea&tion in the a&ade!i&
&o!!unity, ?#y the !id 3990s- !any businesses and &onsu!ers
began to use the te&hnology- and both advertising *ra&titioners and
resear&hers had begun to e(a!ine the *otential of the Internet as an
advertising !ediu!-@ <28=,
Sin&e its in&e*tion- the Internet has evolved in&redibly Bui&1ly-
dire&tly a0e&ted by %oore5s la) of &o!*uting *o)er, In that light-
?%ar1eters and their &lients are both striving to res*ond to &onsu!ers+
ne) digital behaviors and the a&&o!*anying evolution of their
attitudes to)ard advertising, 9hile advertisers and agen&ies are
!a1ing great advan&es in &reating digital &a!*aigns- the )ay for)ard
18 18
is still not easily dis&ernable@ <24=, "onsu!ers are ada*ting to the
Internet !u&h faster than the a&&o!*anying resear&h- and the
!easure!ent ben&h!ar1s are only no) be&o!ing available to
s&holars and *ra&titioners ali1e, Individual digital te&hnologies that a&t
as advertising !ediu!s ea&h de!and their o)n attention fro! the
a&ade!i& )orld- yet the *roliferation of these te&hnologies is o&&urring
!u&h faster than the resear&h &an 1ee* u* )ith, Oven )ith su&h
i!*ortan&e *la&ed on it- !u&h about the Internet as an advertising
!ediu! has gone une(*lored in these $rst de&ades of the Internet-
in&luding the e0e&t the !ediu! is having on traditional advertising,
?Advertising and !ar1eting *ra&titioners- and a&ade!i&sE are by no)
a)are that !ore syste!ati& resear&h is reBuired to reveal the true
nature of &o!!er&e on the )eb-@ <2:=,
The Internet )as &reated for the s*e&i$& *ur*ose of
&o!!uni&ation- but it has sin&e evolved to be&o!e so entren&hed in
the everyday lives of *eo*le all around the )orld that !ar1eters
&annot a0ord to ignore digital *o)er, ?"onsu!ers today are s*ending
!ore ti!e online than )ith any other !ar1eting &hannel, This
funda!ental shift in the !edias&a*e is driving both ho) &onsu!ers
engage )ith brands and ho) !ar1eters understand and &ater to their
&onsu!ers- @ <29).
/ne of the !ost outstanding areas of study is the evaluation of
the resear&h that has been done- and still needs to be done- on the
19 19
e0e&tiveness of advertising in the digital )orld, ?Ovaluating the &urrent
status of Internet advertising resear&h is i!*ortant be&ause it also
*rovides a histori&al *ers*e&tive and a gli!*se into the future-@ <28=,
As the Internet evolved into a ne) !ediu! for advertising- !ost of the
fo&us )as on banner advertising, At that ti!e- the !ost often used
for! of e0e&tiveness resear&h )as !easuring &li&1 through rates,
No)ever- as Dre>e and Nusherr re*orted- ?&li&1Qthrough rate is an
ine0e&tive !easure of banner ad *erfor!an&e, E advertisers should
rely !ore on traditional brand eBuity !easures su&h as brand
a)areness and advertising re&all@ <;0=, They also noted that dro*s in
&li&1 through rates )ere o&&urring be&ause banner ads had be&o!e
al!ost se&ond nature- and failed to &at&h the attention of &onsu!ers,
In addition to the *oint that &li&1.through rates )ere not the best
)ay to !easure e0e&tiveness of advertising on the Internet- the
sub'e&t of ad avoidan&e be&a!e in&reasingly i!*ortant for
*ra&titioners and a&ade!i&s ali1e, %u&h fo&us )as *ut on )hy
&onsu!ers )ould a&tively avoid advertise!ents on the Internet as
o**osed to traditional for!s of !edia, In 200C- "ho and "heon
&on&luded that a !ain sour&e of avoidan&e on the Internet )as due to
?*er&eived ad &lutter,@ This !eant that )hile so!e &onsu!ers )ould
still engage in banner advertise!ents- !any *eo*le believed that
there )ere si!*ly too !any ads- and they did not )ant to )aste their
ti!e sifting through all banners to $nd those !ost useful to the! <;3=,
20 20
Another sour&e of avoidan&e "ho and "heon dis&overed )as that
)hile so!e ads )ere truthful and )orth the ti!e- there )ere !any
?s*a!@ ads that used de&eiving ta&ti&s to lure &onsu!ers into &li&1ing
on the ad, They believe that these ads not only detra&t fro! the
average &onsu!er5s )illingness to engage in banner ads- but they also
dilute the trust)orthiness of &li&1.through rate !easure!ents <;3=,
Today- this !ay not be the &ase, 9ith &reative tea!s in&reasing
intera&tivity in their banner &ontent- as )ell as the develo*!ent of ne)
digital advertising &hannels- &li&1.through rates have be&o!e
in&reasingly !ore i!*ortant, Nigel Nollis stated- ?The dire&t res*onse
*aradig! has be&o!e the yardsti&1 of online advertising su&&ess due
to the universal !easure!ent of &li&1.through,@ Nollis &ontinued to
&on&lude that ?&li&1.through is *ri!arily a &onseBuen&e of the brand
building e0e&t &o!bined )ith a )illingness to learn !ore about the
s*e&i$& brand-F <;2=, Today5s !ore Internet savvy &onsu!ers 1no) a
de&ent ad )hen they see it- and also have *rogra!s installed to deter
?s*a!@ advertising fro! in$ltrating their online lives,
In addition to banner ads- !any ne) for!s of advertising on the
Internet have a**eared in re&ent years, "onsu!er generated &ontent
<""=- so&ial net)or1s- and !obile advertising have all be&o!e
i!*ortant &hannels for !ar1eters )ishing to rea&h their &usto!ers,
"" is a very i!*ortant fo&us a!ong !ar1eting *ra&titioners be&ause
it is one area of their brand over )hi&h they have no &ontrol, ?9hile
21 21
not- stri&tly s*ea1ing- falling into the &ategory of Yadvertising5 as
traditionally de$ned- E these &reations are highly relevant to
!ar1eters,,,@ <;;=, This is be&ause the ele!ents &reated *rovide
insights into &onsu!ers5 *er&e*tions of brands- highlight the !ost
&o!*elling !essages in the &onsu!ers5 !inds- and are only going to
o&&ur )ith in&reasing regularity as ti!e goes on,
The *roliferation of ine(*ensive and easy to use &reative
develo*!ent soft)are allo)s &onsu!ers to develo* &ontent that rivals
that of the *rofessionals, This also !eans that as &onsu!ers gain !ore
and !ore e(*erien&e in being ?vigilante !ar1eters-@ the a!ount of
&ontent )ill only in&rease <;;=, %ar1eters are no) seeing the
i!*ortan&e of &reating a uniBue brand identity in order to ?o0er
&onsu!ers !ore s*a&e for su**le!ental !eaning &reation@ <;;=,
"onsu!ers &an add !any di0erent *ers*e&tives on )hat the brand
!eans to the! and in&rease the overall su&&ess of the brand- serving
as brand evangelists and trust)orthy third *arty sour&es,
So&ial net)or1ing sites are also a fo&us of resear&h in the
a&ade!i& &o!!unity be&ause of the *o*ularity and gro)th of the
&o!!unities, S&holars and *ra&titioners ali1e are interested
*arti&ularly in ho) )ord of !outh <9/%= behaves in the online &onte(t
as o**osed to oZine- and ho) &onsu!ers &an a**ly so&ial
&o!!uni&ation to *rodu&ts- brands- and $r!s <;C=, %ulti*le studies on
so&ial net)or1s and their relationshi* to !ar1eting have found several
22 22
i!*ortant &hara&teristi&s and advantages for !ar1eters, Mor e(a!*le-
a study of over 2-000 Internet users dis&overed several !otivation
fa&tors for *arti&i*ation in e.9/%- and found that grou*s of users &an
be seg!ented by the things that !otivate their *arti&i*ation- su&h as
self.interest and &onsu!er advo&ates <;A=, #ro)n- #roderi&1 and 7ee
<2004= re*orted that branded online &o!!unities should host- ?a )ide
range of interests-@ )ith &onne&tions to the brand- and any dialogue
bet)een the brand and the &onsu!er should be honest and o*en to
avoid negative *ubli&ity fro! furtive !ar1eting te&hniBues, They also
noted that !u&h !ore needs to be learned about the so&ial as*e&ts of
online infor!ation sear&hing and net)or1ing- as it is an in&redibly
i!*ortant area of !ar1eting- and )ill &ontinue to be so <;C=,
%obile !ar1eting is also an area of study that is gaining
i!*ortan&e and *o*ularity, ?The ubiBuitous nature of &ell *hones
!a1es the! an ideal advertising vehi&le-@ as over 2A0 !illion
A!eri&ans use &ellular *hones- S!art*hones- and JDA5s on a regular
basis <;8- ;4=, Sultan and Roh! <200:= re&ogni>ed that younger
audien&es- )ho had been notoriously hard to rea&h using traditional
!edia- )ere !ore easily rea&hed using !obile &ontent- and &ondu&ted
a study to dis&over reasons for this )illingness to *arti&i*ate, They
found that !obile usage &hara&teristi&s and *riva&y &on&erns )ere
a!ong the to* fa&tors inLuen&ing a&&essibility in the 2S %ar1et,
I!*li&ations for !ar1eters thus )ere the ne&essity to &reate trust- as1
23 23
*er!ission <to avoid ad &lutter *roble!s=- and ensure that the *ro*er
usage &hara&teristi&s <i,e, ; net)or1s= )ere in *la&e to allo) for easy
usage of the servi&e <;4=, Another study in 200A investigated the
fa&tors that sti!ulate &onsu!ers to a&&e*t !obile advertising- )hi&h
in&luded the establish!ent of a )ell.founded basis of trust for !obile
!ar1eting <;:=,
Although !any areas of the Internet have been studied and
revie)ed- ?resear&h in !ar1eting is &urrently in an e!bryoni& state
regarding the ele&troni& !ar1et*la&e- both in ter!s of ho) &onsu!ers
intera&t )ith ea&h other online- and ho) $r!s &an utili>e the Internet
to drive value &reation a&tivities-@ <;C=, In addition- little has been done
to e(*lore the e0e&ts of the ne) te&hnology on advertising agen&ies-
)hether they are the large traditional *layers or digital ne)&o!ers,
The ne(t se&tion atte!*ts to &lear u* so!e thoughts about the future
of the advertising industry in the light of the digital revolution,
Section II: The $uture
%any thoughts &ir&ulate about )hat the future !ay hold for the
advertising industry in light of the digital revolution no) in e0e&t,
So!e believe the ne)er- s!aller- !ore agile digital agen&ies )ill thrive
in the in&reasingly digital )orld- )hile the lu!bering traditional
agen&ies )ill fail to ada*t- and slo)ly die out or be&o!e absorbed by
the digital sho*s, /thers believe that the traditional agen&ies )ill
ada*t and leverage their &reative and relational strengths and be&o!e
24 24
even !ore su&&essful than they are no), %any believe a &o!bination
of the t)o s&enarios )ill o&&ur, To gain insight on the industry- I
intervie)ed several e(e&utives fro! both traditional and digital
agen&ies to get their uniBue *ers*e&tives on ho) the industry has
&hanged and )ill &ontinue to &hange in the fa&e of the digital )orld,
Also- I as1ed the si( res*ondents )hat businesses need to be
su&&essful in the future- as )ell as their thoughts on )hat o**ortunities
and threats fa&e the traditional agen&ies going into the future,
!hange So $ar
Res*ondent /ne- "O/ of a !ar1eting resear&h $r!- stated- ?The
industry has &hanged in so !any )ays over the *ast de&ade and a
half, 9e5ve gone fro! full.servi&e agen&y <&reative- *lanning-
resear&h=- to a syste! in )hi&h !ar1eters have be&o!e very
s*e&iali>ed in &hoosing their agen&ies@, The res*ondent &ontinued to
note that a di0erent agen&y )ould be &hosen for TK advertising- one
for Intera&tive- one for !edia buying- one for !ar1eting resear&h- and
that the agen&y lands&a*e had be&o!e in&reasingly frag!ented sin&e
the rise of digital te&hnology,
Res*ondent T)o- a %anaging Dire&tor at a large traditional
advertising agen&y- believes that ?digital is no) Ythe ne) !ass
!edia,5@ Ne &ontinued-
25 25
It is no longer 'ust a s!aller side &hannel for
&o!!uni&ations, It has be&o!e as i!*ortant-
or in so!e &ases !ore i!*ortant than )hat
!any )ould &onsider traditional !ass !edia, It
has e(tre!ely high *enetration- and it &an be
highly targeted, Not even t)o years ago )as it
&onsidered to be so ubiBuitous- sho)ing the
high *a&e of &hange in the industry,
This ?ne) !ass !edia-@ he says- has an i!!ense i!*li&ation for
traditional agen&ies if they )ish to survive, /*erationally- s1ill sets
have to &hange, The business is no longer fo&used around a ;0 se&ond
s*ot and a *rint &a!*aign, Internet ads have di0erent &onsu!*tion
*atterns and di0erent !essage strategies- and there has been a shar*
in&rease in training all around to &at&h u* )ith the digital trends,
"o!*anies have also begun hiring younger )or1ers )ho have gro)n
u* in a digital )orld- and thus have been i!!ersed in the te&hnology
their entire lives,
Res*ondent Three- a %anaging Dire&tor of a digital agen&y- also
believes agen&ies )ill ada*t to the digital !ove!ent- and &ontinue to
?follo) &usto!ers to the !edia that they are engaged in,@ Ne agrees
that traditional agen&ies have already &hanged tre!endously- ado*ting
stronger digital *resen&es and &usto!er engage!ent strategies- and
26 26
are li1ely to &ontinue to !ove into the digital s*a&e using those
!ethods,
Res*ondent Mour- again fro! a traditional agen&y- *ointed out
that agen&ies are &onstantly in a state of &hange- as )ith every !a'or
te&hnologi&al innovation in the *ast, ?It is really the *a&e of &hange
that is the !ost signi$&ant di0eren&e no) as o**osed to in the *ast,@
She &ontinued-
"onsu!ers are Bui&1er to ado*t ne)
te&hnologies than &lients or agen&ies- )hi&h
&reates a syste! of &at&h.u* for the agen&ies,
Also- there has been a shift in *o)er fro! the
advertiser to the &onsu!er in )hi&h the
&onsu!er no) &hooses )hi&h of !any
&hannels they )ish to re&eive their infor!ation-
and the environ!ent is no) a !u&h !ore
&onsu!er integrated one )here &onsu!ers
$nd their o)n infor!ation on their o)n ti!e-
&reated by other &onsu!ers,
!hange in the %ear $uture
Res*ondent Mour5s *oint about agen&ies al)ays being in a state
of &hange see!s to hold true- as !any *eo*le believe that the industry
is in for even !ore drasti& &hanges in the ne(t three to $ve years,
Res*ondent /ne believes as the larger agen&ies beef u* their digital
27 27
s1ills and &lient o0erings- )e )ill see a !ove!ent ba&1 to a !ore ?full.
servi&e@ !odel, She said- ?9e !ay see &reative agen&ies bee$ng u*
their digital tea!s- or a&Buiring !ore digitally s*e&iali>ed agen&ies-
)ith so!e ?!edia@ agen&ies getting into the digital &reative arena-
be&ause they believe they have the s1ill.sets to be su&&essful,@ She
)ent on to say that )ith all these &hanges o&&urring si!ultaneously-
)e are seeing- and )ill &ontinue to see- a !ove!ent ba&1 to the full
servi&e agen&y- )ith less frag!entation in &hoi&es fro! !ar1eters,
Res*ondent T)o has found the &ontinual &hanges and
develo*!ents in ad for!ats in&reasing the &ontent reBuire!ents for
&reative tea!s- as !ar1eters )ant to be every)here their &onsu!ers
are, The e0e&t of this- he said- is- ?things have to ha**en at the s*eed
of light, It is no longer &reating one ;0 se&ond TK s*ot- then ada*ting a
*rint &a!*aign fro! that, There has been an e(*losion of &ontent
reBuire!ents- !eaning that &reative tea!s have to ta1e the
&o!!uni&ation ob'e&tives and ada*t the! to all for!s of ;80 !edia-
and do it faster than ever,@ Another thing he *ointed out is the
in&reased e0e&tiveness of Internet.related !ar1eting resear&h as
ben&h!ar1s are being for!ed and *re&edents are being set,
Res*ondent Mive is a %anaging Dire&tor at a s!aller digital
agen&y- and believes that )e )ill see a &ontinued frag!entation of
audien&es and an in&reased *ro*ortion of *eo*le vie)ing TK and video
online- !a1ing it ne&essary for agen&ies to &o!e u* )ith &ontent that
28 28
is engaging and intriguing, Ne stated- ?"onsu!ers no longer have to
)at&h the TK and video that is served u* to the!- they &hoose )hat-
)hen- and )here to )at&h,@ Ne )ent on to say the in&reasing
i!*ortan&e of &reative and the ?fun@ fa&tor )ill &ontinue- and it )ill be
u* to the agen&ies to !eet the needs and )ants of the digital
&onsu!er, Res*ondent Three added that )e should see a !ove to
!obile advertising- )hi&h he believes is the future of advertising,
A&&ording to hi!- !obile &onstitutes ?a highly targeted !ediu! )ith
al!ost &onstant a&&ess to &onsu!ers,@
To su! all of these *oints u*- Res*ondent Mour argues that )e
)ill ?&ontinue to see a &onvergen&e of all te&hnologies,@ This )ill- in
turn- !a1e the agen&ies a lot s!arter, This !eans that agen&ies are
for&ed to learn ne) s1ills- they )ill $nd out ho) they need to ada*t- in
)hat )ays are the &hannels di0erent- and dis&over ne) )ays to serve
their &lients in a ;80 degree !ar1eting )orld,
Im&erati'e for Succe
Through the intervie)s I )as able to identify several i!*ortant
attributes that businesses- )hether digital or traditional- !ust *ossess
in order to be su&&essful in the future, The overar&hing the!e of !any
of the res*onses )as su!!ed u* by Res*ondent /ne- )ho said- ?Any
agen&y that &lings to the !odel that it5s all about TK advertising is
going to su0er,@ %any res*ondents agreed )ith this *oint- and
Res*ondent Mive elaborated: ?Traditional agen&ies have been
29 29
in&reasingly &hallenged by the frag!entation of audien&es- but are
$nding out that it is not as si!*le as one big TK s*ot, The *ressure
has been gro)ing for agen&ies to &o!e u* )ith brand ideas that serve
as drivers of the brand- rather than relying on TK &o!!uni&ation,@ Ne
&ontinued to state that through $nding a strong brand driver- the
!ar1eter &an integrate all of their !ar1eting &o!!uni&ations through
that one &o!!on idea, In the *ast- agen&ies )ould si!*ly develo* a
TK s*ot- and then ada*t the sa!e idea for *rint,
Res*ondent /ne also believes- ?A &ontinued invest!ent in digital
is an absolute !ust,@ This is be&ause in the future )e )ill see less and
less di0eren&e bet)een traditional and digital advertising due to the
rise of Internet video- thus digital agen&ies )ill need to beef u* their
$l! !a1ing and story telling &a*abilities to &o!*ete )ith traditional
agen&ies, Res*ondent Three stated that it is very i!*ortant for
agen&ies of the future to have a broad range of &a*abilities- and be
able to ada*t to &hanges in the industry- as far as !oving fro!
traditional to digital to !obile, "on&urrently- Res*ondent Mour stated-
?Agen&ies !ust be able to serve their &o!*anies in a ;80 )ay,@ This
!eant they !ust address the needs of their &lients as the &onsu!ers
be&o!e frag!ented and the !ar1eters5 agen&y needs be&o!e !ore
&on&entrated,
Res*ondent Si(- a %anaging Dire&tor at an /ut./f.No!e
advertising agen&y- too1 a !ore &onsu!er.based a**roa&h, Ne said-
30 30
?%ar1eters and agen&ies need to stay relevant to &onsu!ers, The
&onsu!ers &hoose )hen and )here they &onsu!e their !edia, Kery
fe) *eo*le are there right no)- rea&hing *eo*le )henever and
)herever they &an be rea&hed,@ Res*ondent Mive argued along the
sa!e lines- stating- ?"lients )ant their brands to be )here the
&onsu!ers are- and &onsu!ers are every)here, Agen&ies !ust be
ade*t in &o!!uni&ating the brand in all &hannels- not 'ust !ass !edia
or digital- or *rint,@
Strength and (&&ortunitie
Though traditional agen&ies are under *ressure to &hange in the
ne) digital )orld- they still *ossess !any strengths and o**ortunities
that )ill hel* the! su&&eed in the future, /ne i!*ortant strong *oint in
traditional agen&ies )as identi$ed by Res*ondent /ne,
Traditional agen&ies still *ossess dee*
relationshi*s )ith their &lients that have been
for!ed over !any years of )or1ing together,
This !eans a dee*er 1no)ledge and
understanding of *rodu&t life &y&les and the
i!age of their &lients, Also- traditional agen&ies
have highly develo*ed *rodu&tion &a*abilities-
in&luding story telling and $l! !a1ing- that are
be&o!ing !ore and !ore i!*ortant as TK and
Digital for!ats are !erged,
31 31
To ta1e advantage of this- traditional agen&ies have the si>e and
strength to beef u* their digital &a*abilities- )hile at the sa!e ti!e
leveraging their &lient relationshi*s and integrating their ne)ly found
digital talent )ith their longstanding traditional !edia *ro)ess, This
)ill then allo) the! to be&o!e a true ;80 degree agen&y- addressing
one of the !ain i!*eratives dis&ussed in the *revious se&tion,
Res*ondent Si( added to this *oint- stating- ?Traditional agen&ies
still have in&redibly strong &reative de*art!ents )ho are very &a*able
)hen it &o!es to telling a story, They 1no) ho) to be engaging- they
understand their &lients and the brands they are dealing )ith- and they
)ill &ontinue to $nd fresh- intriguing )ays to &onne&t to &lients,@ The
o**ortunities he identi$ed fo&used on &lient servi&e rather than !edia,
Ne argued that traditional agen&ies have the o**ortunity to !a1e it
si!*le for their &lients to $gure things out, They &an hel* the &lient
$gure out ho) to navigate the in&reasingly &o!*le( )orld- and lo&ate
)here to !ost eR&iently lo&ate their ad dollars,
Res*ondent Mour dis&ussed ho) develo*ing relationshi*s )ith
*ortals and te&hnology &o!*anies is an i!*ortant o**ortunity for
traditional &o!*anies, Traditional agen&ies are not threatened by
*ortals as so!e believe- but !ore they o0er agen&ies o**ortunities to
&ollaborate and learn, Agen&ies !ust be &lose to &onsu!ers- and
&ollaboration )ith oogle- GahooH- and others allo)s agen&ies a &loser
loo1 into the digital lives of &onsu!ers- thus allo)ing agen&ies to serve
32 32
their &lients in a !ore full servi&e )ay, She believes the &ollaboration-
or ?&o.o*etition@- !a1es both ty*es of $r!s <Jortal and Traditional=
stronger, There is less bla&1 and )hite bet)een ty*es of agen&ies- and
no) ?&ollaboration far e(&eeds that of even A years ago,@
)ea*nee and Threat
iven the strengths and o**ortunities for su&&ess traditional
agen&ies *ossess- it !ay see! that they are in good *osition to
&ontinue their do!inan&e over the industry in years to &o!e, No)ever-
the res*ondents identi$ed several areas traditional agen&ies are
vulnerable and dis&ussed several threats they fa&e in the &o!ing
years,
Res*ondent /ne bro1e the issue do)n to de*art!ents )ithin a
traditional full servi&e agen&y:
Mor &reative de*art!ents- their vulnerability
&o!es fro! the e&ono!i& as*e&t of their
business, In the *ast- the fee stru&tures for TK-
based on *rodu&tion and *la&e!ent &osts-
)ould *rovide the! )ith signi$&ant revenue
fro! ea&h &lient, No)- )ith the rise of digital-
&osts for !ar1eters are !u&h lo)er in the
*rodu&tion and *la&e!ent &ategories- !eaning
less ta1e for the &reative agen&y, Mor !edia
agen&ies- the biggest vulnerability &o!es fro!
33 33
the *ortals and their ability to disinter!ediate
the !edia buying as*e&t of the businesses,
%ar1eters go dire&tly to oogle- rather than
going through an agen&y to get their
advertise!ents *la&ed,
Res*ondent Three also argued the $nan&ial as*e&t of the shift to
digital- stating that the biggest threat to traditional agen&ies is the
erosion of their budgets, %ore and !ore !oney is Lo)ing to highly
Buanti$able !ethodologies li1e intera&tive- and if the agen&y does not
strongly su**ort their &lients in this arena- they )ill lose business to
digital agen&ies,
Res*ondent Mive believes that traditional agen&ies are vulnerable
if they have ?ignored@ the seg!ent- !eaning they have not develo*ed
their digital e(*ertise, ?If they thin1 they &an 'ust dro* their !ade for
TK &ontent online- they )ill fail, The )ays of &o!!uni&ating online are
very di0erent,@ Agen&ies )ho do not ada*t by !eans of a&Buiring or
develo*ing digital talent )ill not be able to serve their &lients in a &ost
e0e&tive !anner- thus losing business and eventually failing,
Res*ondent Mour believes the biggest obsta&le for traditional $r!s is
not !oving fast enough and not anti&i*ating &hange in the !edia
lands&a*e, ?"onsu!ers no) set the *a&e- and &hoose )hi&h
te&hnologies they )ill ado*t- so the )orld is be&o!ing harder and
harder to *redi&t,@
34 34
All of the i!*eratives- strengths- )ea1nesses- o**ortunities and
threats for traditional agen&ies hint to)ard )hat the future !ay hold
for the industry- but in order to truly gauge )here all the *reviously
identi$ed trends are bringing us- I as1ed the res*ondents to identify
)hi&h of three future s&enarios )ere !ost li1ely- and )hy, The three
s&enarios I &hose )ere: Digital Ki&tory- )here traditional agen&ies
slo)ly die- being unable to ada*t to the &hanging environ!ent-
eventually being absorbed by in&reasingly *o)erful digital agen&iesU
In&u!bent Ki&tory- )here traditional agen&ies eventually e!erge
vi&torious over digital agen&ies by leveraging their long.standing &lient
relationshi*s and investing in their o)n digital agen&iesU and $nally- a
Rise of the Jortals- )here both traditional and digital agen&ies are
driven to e(tin&tion by oogle- Gahoo and %SN )ho leverage their
digital o!ni*resen&e to a vast net)or1 of digital &ontent fa&tories
*o)ered by the &reativity of !ore than a billion &onsu!ers, I also gave
the! the o**ortunity to des&ribe a s&enario that )ould be !ore li1ely
than any of those three,
Res*ondents /ne- T)o- Three and Si( all believed that an
In&u!bent Ki&tory )ould be the !ost li1ely s&enario- albeit for di0erent
reasons and by di0erent !eans, Res*ondent /ne- for e(a!*le-
believes that ?traditional agen&ies )ill be&o!e !ore and !ore digital
savvy- be&o!ing !ore integrated in a ;80 degree )orld- being able to
leverage relationshi*s and si>e against digital start.u*s,@ She also
35 35
added that a less li1ely- but still *ossible s&enario e(ists )hi&h goes
along )ith an In&u!bent Ki&tory:
Not so !u&h !ore li1ely- !ore of a long shot-
but a resurgen&e of a ?full.servi&e@ agen&y is
*ossible- )ith all for!s of !edia integrated
)ithin one agen&y, Mor e(a!*le- !ore and
!ore *it&hes beginning )ith- Ythis is not an
/gilvy *it&h or )hatever- this is a 9JJ *it&h-
)e )ant our s*end &onsolidated here- so )e
get a fully integrated &o!!uni&ations
*rogra!- rather than frag!ented,5 "lients )ill
be &o!ing to *arent &o!*anies- )ho then
leverage their subsidiaries in one fell s)oo*- so
to s*ea1,
Res*ondent Si( *resented this vie) of ho) the stru&ture of the
industry )ill loo1:
The industry is li1e the 9ild 9est- it5s li1e a
land grab- as there is an ever in&reasing
ne&essity to gain e(*ertise in all areas- and to
be ?ste)ards@ of their &lients5 budgets,
Nolding &o!*anies- and the larger agen&ies
)ithin &reate and a&Buire digital talent <e(:
GWR[ %edia Odge= to e(*lore e!erging
36 36
te&hnologies and have those ne) &hannels
available for their &lients, Also- so!e
&o!*anies )ithin ea&h holding &o!*any <e(:
Kineti&= ?synergi>e@ all for!s of e!erging
!edia and allo) those )ith a !ore traditional
fo&us to o0er ne) things to their &lients,
A !ore &autious vie) of the In&u!bent Ki&tory )as *resented by
Res*ondent T)o- )ho stated that traditional agen&ies have been
retooling and retraining- &hanging their hiring *ra&ti&es- and
aug!enting their strategies- all of )hi&h *oint to a digitally integrated
future, These strong traditional agen&ies re&ogni>e the i!*ortan&e of
the ne) !edia- and )ill be able to ada*t )hile 1ee*ing the Buality and
&lient relationshi*s of the traditional )orld,
Res*ondents Mour- Mive- and Si( shared the si!ilar vie) that all
three s&enarios didn5t $t their vision of the future- and believe that- in
fa&t- all three s&enarios )ill o&&ur in a blended fashion- )ith traditional
agen&ies ada*ting and thriving- and digital agen&ies develo*ing their
traditional toolbo(es- )hile the online *layers are &o!*eting against
ea&h other- rather than the bri&1 and !ortar agen&ies, Res*ondent
Mour too1 a global *ers*e&tive:
De*ending on ho) you loo1 at it- and )hat
region of the )orld- all three of these &ould be
ha**ening si!ultaneously, There is intense
37 37
&ollaboration bet)een all ty*es of $r!s- and
the agen&y !odel of the future is li1ely to be a
blended !odel, 9e are already seeing this in
*art )ith &ollaboration )ith online *layers- and
no traditional agen&y not already having a very
strong digital *resen&e,
Minally- Res*ondent Si( also believed the real result )ill be a
fusion of all three- )here digital agen&ies develo* their &reative and
story telling abilities- and are then able to serve &lients in a !ore
traditional fashion- )hile traditional agen&ies )ill develo* their o)n
digital e(*ertise and be&o!e Luent in that language- )hile retaining
their do!inan&e over the traditional )orld, As a $nal *oint- Res*ondent
Si( stated- ?All $r!s )ill ada*t to their )ea1ness and be&o!e stronger,
Those that don5t ada*t )ill die,@
!onc+uion
The industry analysis fro! 3998 to 2004 highlighted !any trends
)e have already seen develo* throughout the advertising industry,
9hen &onsidered se*arately- ea&h trend !ay see! insigni$&ant in the
grand s&he!e of the !ulti.billion dollar industry- but )hen &o!bined-
they sho) that the Internet is- in fa&t- a !a'or for&e- and )ill &ontinue
to be so going into the future, The Buestion industry *rofessionals
have been as1ing for years is- ?9hat )ill the future hold for traditional
advertising- and )hat )ill ha**en to those agen&ies )ho have relied on
38 38
su&h !edia in the *ast?@ #oth the fa&ts and $gures as )ell as the
intervie) &o!!entary *oint to)ard one overar&hing s&enario )hi&h I
believe )ill &o!e to fruition, Agen&ies- both Digital and Traditional-
!ust ada*t to be&o!e ;80 degree *layers, Those )ho do not )ill
slo)ly die or be&o!e absorbed by those )ith the foresight to reali>e
this ne&essity,
Although this s&enario is not &ertain- several of the business
i!*eratives identi$ed by !y intervie)ees su**ort this general
dire&tion, They identi$ed a &ontinued invest!ent in digital as ?an
absolute !ust-@ for agen&ies that have traditionally relied on TK- Jrint-
and Radio as their !a'or sour&es of in&o!es, 7i1e)ise- agen&ies that
s*e&iali>e in digital !edia )ill need to strengthen their traditional
&a*abilities- su&h as story telling and &reativity- as the lines bet)een
traditional and digital !edia are blurring, The !ost i!*ortant reason
for this *aradig! shift ste!s fro! the !ar1eters the!selves, They
)ant to get relevant &onta&ts )ith &usto!ers as !u&h as *ossible- and
the !ost e0e&tive use of their budgets is not through one !a'or
!ediu! or another, They !ust have full s*e&tru! brand &overage,
Thus- trends are *ointing to !ar1eters not )anting to s*read their
budgets over !any agen&ies- but rather fo&using on one $r! )ith the
&a*ability to do it all, If both ty*es of agen&ies heed this advi&e- )e )ill
!ost li1ely see the integrated- full.servi&e agen&y !odel $nding
su&&ess in the digital future,
39 39
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