New telecommunications technology will change the face of advertising
By John Ellis, Globe Columnist, 02/27/99
New technologies are changing the rules of business and turning traditional business models upside down. You see it everywhere you look. One business that will soon be transformed by these technologies is advertising. Technology shifts power from the producer to the consumer. This shift will require advertising agencies to completely rethink their business.
Consider the average consumer. She's a baby-boomer, lives in a suburb, may or may not be married, has kids, goes to work, and has no time. Today, advertisers can reach her through television, radio, print, direct mail, telephone solicitation, point of purchase marketing, billboards (on the highway and on the Internet), and sponsorships.
In the not so distant future, she will have a digital television recording system that will enable her to zap the advertising out of her favorite shows. She will have the equivalent technology available in her car radio.
She might still be responsive to print advertising because she views it as helpful (sales and information), but direct mail she will simply throw away.
Telephone solicitation won't work because every phone will have caller identification; she'll answer calls only from people she knows.
Point-of-purchase will work but it must cut the price of the item she intends to buy or it's not doing her any good.
Most important, billboards on the Internet won't work because she'll have software (that's available now from two companies, one in Massachusetts and one in Seattle) that filters out any Web advertising that she doesn't specifically request to see. And because this software blocks Web advertising billboards from downloading, the rest of the data she seeks downloads faster, thus making her connections to Web sites twice as fast.
All of which leaves advertising agencies with some explaining to do. A 30-second television commercial for, say, Coca-Cola, might cost as much as $2 million to produce and another $30 million to place on various television shows over the course of its run. The advertising agency probably makes $350,000 on the production side and another $3 million on the placement side.
That's a reasonable business.
But how can anyone justify spending that kind of money if no one is watching the ad? It's bad enough that more than half the people watching the ad never or hardly ever drink Coke. What happens when every American household with disposable income has a digital television recording system instead of a VCR? How much longer is Coca-Cola going to pay its advertising agency $3.35 million for an ad that no one watches?
The short answer is: not for long. Companies like Coke are going to have
to find a different way to reach consumers. It is true that television
advertising will still be effective in ''real time'' programming, like
sports and breaking news. This is why major advertisers (like General
Motors) have bought time on major sporting events (like the Olympics)
well into the next century. But who can predict when the next major
''breaking'' news story will occur? No one can.
This is not to argue that the advertising business will disappear. It will not. But it will be transformed by the imperatives of the new technology.
If advertisers can't reach you through the tube, if they're blocked out of your radio, if they're digitally erased on your favorite Web sites, if they're screened on your telephone, and if you instruct your e-mail provider to only allow advertising you want to see, then the ad business as it is currently configured simply doesn't work. No one will pay advertising agencies billions of dollars every year to not reach consumers.
So what will happen? First, advertising agencies will become consulting companies, in the same way that spreadsheet software caused auditing firms to transform themselves into consultancies in the 1980s and early 1990s. Second, advertising companies will become Internet companies. Third, advertising agencies will form joint ventures with telecommunications companies to help them manage, market, and communicate with their databases. Fourth, advertising agencies must reinvent themselves as hothouses of creativity, constantly coming up with ever more ingenious solutions to marketing problems.
Whatever happens, the advertising business will never be the same again.
''Reach Out and Touch Someone'' was a great television commercial and
emblematic of a great business success story. ''Figure Out and Put The Touch On the Database'' is what that advertising business will become.
John Ellis is a Globe columnist.
This story ran on page A19 of the Boston Globe on 02/27/99. © Copyright 1999 Globe Newspaper Company.