Why Almost Everything You Hear About Digital Media is Wrong
There is a digital media revolution underway. It seems that every time you turn around, some little snot is telling you that you don’t “get it.” You need to adapt or get run over by the Darwinian forces underway. It’s “survival of the fittest” and you’re just too fat, stupid and lazy to realize it.
Then you take a look at the facts and it’s tough to see what they’re talking about. TV viewership remains at or near all time highs, traditional media companies are not only profitable, but with very respectable margins and after 15 years, digital media, in all of its forms, makes up a fairly small portion of marketers’ budgets.
There is, however, something interesting going on and I’m pretty sure that it’s important. The problem is that it’s not happening in the places we would normally look.
The Media World: 1997 vs. 2010
We’re told that the Internet has changed everything. “All budgets are now being shifted to digital” is a constant refrain touted by triumphant advocates, confident that they have seen the future and it is, indeed, them. It’s one of those things that has been so often repeated that it’s taken as gospel, a homily beyond question or reproach.
However, even a cursory look at the data reveals a much different story.
As two charts above comparing 1997 and 2010 show, digital has taken a big bite out of newspapers, but after 15 years, the rest of the media world is largely unaffected. The details vary slightly by region, but the story is generally consistent across the world.
There’s an underlying logic at work here. Newspapers depended heavily on classifieds and the Internet is a vastly superior direct response medium. However, direct marketing is a small proportion of overall budgets, so most of the media world has been left largely unchanged.
Many would have us believe that we can just chalk this up to the fact that marketers don’t “get it” yet. However, I find the notion that highly competitive, profit driven companies filled with lots of very smart people, would somehow overlook truths uncovered by a few self appointed digerati high priests a bit hard to take.
The Mystery of Missing Media Budgets
Our story doesn’t end there, however. There is something else going on in the data, but it’s so subtle that it’s easy to overlook. There is, in effect, some money missing.
Media spend and GDP are intrinsically related. The more an economy produces the more it promotes. The Ad Spend/GDP ratio has consequently been relatively stable historically (except in emerging markets, where it tends to go up).
So it is surprising that, since 2002, GDP has been outpacing media expenditure, especially given that most of that span was made up of boom years. In good times firms are more optimistic so media spend usually slightly outpaces GDP.
The gap widened during the crises and may narrow a bit in the future, but the fact that the overall trend is consistent across cycles is a good indication that something is truly afoot.
The Three Pillars of the Brand
In order to get an idea of what’s going on, we need to look a bit deeper into what marketers seek to achieve and then work back to how their goals manifest themselves into the strange spending patterns described above.
Earlier, I introduced the concept of the brand pathway, a 5-stage model that clarifies brand objectives. Unfortunately, there was some confusion and many thought I was describing a linear process, which I was not. So I’m going to simplify it by condensing it into three pillars of the brand.
While there are innumerable ways to evaluate a brand and they all have their charms, these three metrics taken together will give you a pretty good idea of both the short and long term health of a business.
Awareness: Many people are skeptical of awareness and it has been, to a large extent, overused. It’s not an end in itself as much as it’s a means to an end. Nevertheless, it’s an important indicator, companies go to a lot of trouble to monitor it on an ongoing basis and there is growing evidence that brand promotion affects product performance.
Marketers have learned through decades of experience that mass media, especially TV, is the most efficient way to build awareness quickly. That explains why they continue to invest in traditional media at roughly the same levels that they always have.
What’s digital media’s role in awareness building? To date very little. It’s still primarily a direct response vehicle. With convergence, that may change, but mostly by blurring the lines to the point where the distinction becomes irrelevant.
Sales: From a financial point of view, sales are the primary goal of any marketing program. There are, however, several ways to increase sales while hurting the brand, such as discounting and “flooding the channel.” So simply tracking market share in isolation is not a good idea.
Certainly, digital has had some success in producing sales. As I mentioned above, it is largely due to the Internet’s superiority as a direct response medium that newspapers have seen drastic declines in revenues and profit margins. Moreover, the success of e-commerce giants like Amazon and e-Bay can not be denied.
However, even in this area digital needs to be put in context. A recent Forrester report forecasts that by 2014 e-commerce will make up only 8% of total retail in the US. 8% is significant, but by no means dominant.
Moreover, there have been other things going on as well, like the Wal-Mart led revolution in logistics and the growing sophistication of shopper marketing. So even in this area, where digital has had great success, it has been only one of a variety of factors changing the retail environment and probably not the most important one.
Advocacy: Marketers have long known of the importance of “word of mouth,” but until fairly recently didn’t have a good understanding of how to monitor it. That’s changed due to evaluation tools like the Net Promoter Score and social media. Social listening software is advancing quickly and is increasingly becoming standard in conventional marketing operations.
A greater role for advocacy in marketing probably also accounts for the missing media money. Non-standard media placement such as sponsorships and events have become progressively more popular and are notoriously hard to monitor. I don’t have data to prove it, but it seems a fair bet that’s where the extra budgets have been going.
This is an area where digital will likely be game changer, although it’s still not clear whether spending will focus on marketer publishing or paid media.
Disruptive Innovation is Crappy Innovation
As I explained in an earlier post, disruptive innovation is crappy innovation. Crappy, that is, because it tends to do old jobs poorly. A truly disruptive technology changes paradigms by doing a new job entirely. (That’s what makes it so disruptive).
It’s also why so much of what we hear about digital marketing is wrong. The discourse all too often focuses on how digital stacks up against traditional media performing traditional tasks. It shouldn’t be surprising that, in this context, digital often comes up short.
The fact that so many people keep trying to square this circle shows an appalling lack of imagination and good sense. The true impact of digital technology in the marketing arena lies years in the future, possibly more than a decade. What will that impact be? To be honest, I don’t really know and I’m deeply suspicious of anyone who thinks they do.
As Heraclitus once said, we never step into the same river twice. Digital marketing, of course, is a different river altogether.
Update: A few have people asked me about sources and data. The data given comes from ZenithOptimedia’s Global Adspend Forecast, which is probably the most comprehensive and accurate source. If you would like to purchase a copy for yourself, you can find it here.
As for the data itself, I used the global data because it seemed to be the m0st broadly representative. Trends, however, can differ somewhat by region. For instance, in the UK newspapers have declined 15.8% but Internet advertising is a whopping 28.4%. In the US, magazines have done significantly better than global trends, etc.
That said, after years of observing data in a variety of regions, I have a high degree of confidence that the trends as I have presented them are largely indicative of the media market as a whole.