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Is Advertising in the Midst of a Renaissance or a Revolution?

August 8, 2018 at 8:32 AM

“Half the money I spend on advertising is wasted; the trouble is I don't know which half.” – John Wanamaker

 

The golden age of advertising was golden for a reason, agencies were making such an ungodly amount of money you would have sworn they had set up mines right in the heart of New York City.

Sometime prior to this big boom on Madison Avenue, John Wanamaker, the individual many consider to be the pioneer of the era quoted a line that would become advertising lore and ultimately shed light on why the practice was so lucrative: “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”

It was the secret recipe that made the old agency model so extremely effective for advertisers (less so for brands) –– and was the reason giants with Texas-sized budgets kept bucketing money overboard to advertising agencies that were driving sales.

After all, while brands were spending $10 million a year on advertising, they were making $20+ million a year in revenue. So the massive advertising spends were technically working –– technically.

However, the problem with the old agency model was that the $10 million wasn’t actually driving the $20 million revenue –– but rather just a very small portion of that $10 million. Say maybe $5 million.

Or, if we were to ask Pareto, he would argue this number to be more like $2 million and that 80% of the brand’s revenue was probably driven from only 20% of the overall advertising budget. That’s a tough pill to swallow for past executives.

Now, we know what you’re thinking… to the modern marketer reading this in 2018, throwing fistfuls of money at advertising doesn’t make much sense without measuring it.

But, you have to remember during the 40’s, 50’s, 60’s, 70s’, 80’s and most of the 90’s.... data/analytics and advertising didn’t really coexist (or at least not on the level that they do today). Sure, you had the overall return on investment. But what each individual dollar was earning on a micro-level? Forget about it.

However, everything changed in 1998.

 

An early photo of Google founders Larry Page and Sergey Brin

Google disrupts an entire industry.

In 1998, two men came around and invented the very thing that probably brought you to this article –– Google. When Larry Page and Sergey Brin created the search engine that would go on to gobble up 90% of the world’s searches, they needed a way to make money from it –– paid search was what they came up with.

When prospective customers Googled things like “highest quality running shoes,” brands like Nike, Adidas and New Balance could purchase paid advertisements that would show up along with Google’s other ranked pages. Not to mention, instead of brands paying for “brand awareness,” Google offered them a way to only pay for actual clicks.

In old school advertising, this would have been the equivalent to Ogilvy only charging Kellogg's when their advertisements resulted in customers walking in a store and down the cereal aisle.

This concept completely changed advertising as we know it, and in many ways was an unwanted surprise to classically trained advertisers.

When Viacom President, Mel Karmazin, visited Google HQ in 2003, we saw this clashing of ages, like oil and water, in full effect. An old-school advertiser that got his start selling radio ads, Karmazin eventually led up to him pitching (and landing) billion-dollar advertising deals met with Larry and Sergey about an algorithm that could essentially solve the big hairy audacious problem in advertising summed up elegantly by John Wanamaker in the aforementioned quote, “Half the money I spend on advertising is wasted; the trouble is I don't know which half.”

As the pair explained their advertising model to Karmazin, he left the meeting uttering a phrase that would encapsulated the disruption to advertising in one punctual thought, “You’re f****** with the magic.”

 

15 Years Later

It’s been a decade and a half since Karmazin’s realization, and we’re seeing his fears come to fruition as marketing and advertising is becoming just as much a game of data analytics as it is an art form. Traditional advertising agencies are by no means going extinct, but they are certainly experiencing outside pressure from faster, cheaper, more streamlined AdTech companies and big brands that have begun taking their advertising and creative teams in-house.

Today in advertising, it no longer pays to simply be creative. Creatives must now couple their creativity with data and analytics. Big brands are no longer writing big checks for the ambiguity of brand awareness but are instead choosing to go long on pay-per-click.

Continue on to Part II, where we explore the agencies that are thriving in this time of uncertainty. We will discuss their tactics, their unique differentiation and ultimately what is working in a world where advertising is being challenged like never before.

 

Keep reading: Ad Agencies of the Future: 4 Ways Agencies Are Innovating in a Darwinian World

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