Monday, November 5, 2007

Chaos theory: advertising cash will soon decrease

As the media become more dependent on advertising, so advertising becomes less dependent on the media. With the recent death of the New York Times' pay service, TimesSelect, and the rumoured razing of the Wall Street Journal's pay wall, any final hopes of readers paying for content are fading. We prophets of free content are being proven right - whether we like it or not. Advertising is all we'll have to support content and media.

And that's fine. Advertising has long paid for content and made it free. This year, ZenithOptimedia says, advertisers will spend $448bn worldwide, much of it supporting media. Online is the one medium where ad revenue continues to grow, though at a slowing rate - 19% this year, says eMedia. There's lots of money still to be had.

But, of course, there are now more media properties to fight over that money. Scarcity no longer drives the media market, as it did when advertising was limited to the time of broadcast and the space of print. Now there's always another page view. This will drive down the price of media and that could reduce total ad spending. It doesn't help that Google is commodifying media as it scoops up, according to one estimate, 40% of the online advertising market.

But the real threat to the advertising gravy train comes not from any change in media, but from a fundamental shift in the relationship between companies and customers that has been made possible by the internet. This hit me like a fist in the face when I went to Texas to interview Michael Dell for Business Week magazine, and to write the coda to my very public blog battle with the company.

Long story short: in June 2005, I blogged about my bad laptop and eventually, thousands of fellow frustrated customers gathered round, via comments, links and emails, with their complaints. The Dell response to blogs then? Look, don't touch. This came as Dell's customer-satisfaction ratings dropped, its earnings disappointed and its stock fell. That August, I returned my Dell, bought a Mac, and blogged an open letter to Michael Dell urging him to read blogs, write blogs, listen to customers' advice, and "join the conversation your customers are having without you".

The following April, Dell did join that conversation. Suddenly, technicians were contacting bloggers to solve their problems. Dell started a blog. Michael Dell opened IdeaStorm, a site where customers could tell the company what to do; as a result, Dell is now selling Linux computers and reducing the "bloatware" on new machines. They're starting wikis where customers can share what they know and extending forums where they help each other.

Dell's executives say their new problem is managing and spreading all this knowledge from customers. Its chief marketer said his new opportunity is to rely on customer-advocates to sell computers. And Michael Dell predicted a future of "co-creation of products and services" with customers.

There it is: the fist. Dell and its customers are collaborating on the creation of content, media and marketing - without content, media or marketing companies. Advertising is no one's first choice as the basis of a relationship. For marketers, it's expensive and inefficient. For customers, it's invasive and annoying. And targeted advertising is only slightly more efficient and slightly less annoying. Clearly, the direct relationship between a customer and a company is preferable. But that direct connection cuts out the middlemen - that is the media.

The Advertising Age media critic Bob Garfield dubs this the "chaos scenario", arguing that total advertising spending - which long stayed stable and merely shifted among media - will now decrease. Blogger Doc Searls contends that on the internet, "supply and demand will find each other . . . Advertising will still be part of that picture, but it won't fund the whole thing." Beth Comstock, a digital exec at NBC Universal, complains that every business pitch she hears is ad-supported. "It's just not going to be possible," she said recently. "There are not going to be enough advertising dollars in the marketplace - no matter how clever we are, no matter what the format is."

There won't be enough to support us in media in the manner to which we've become accustomed. And it's hard to imagine what other business models will come along to fund us. So we're left with the need to live within our means. To become smaller and more efficient, to find ways to serve advertisers better with more relevance and data, to fight like hell for the ad dollars that are there - and to do all this before advertisers break their media habit by doing what they should have been doing all along: building collaborative relationships with their customers.

Jeff Jarvis is a journalism professor at the City University of New York who blogs at


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