Is the obsession with ROI an exercise in arrogance? Part one of a series.
I've been thinking a lot about how we'll evolve the online advertising industry. I'm convinced that the best way to usher the advertising ecosystem forward is by automating the vastly manual day-to-day work done by thousands of entry-level people.
At a high level, we're discussing automating processes and optimization, optimizing both the advertiser's ROI (define) and the publisher's yield. From a technology standpoint, we've reached a point where the complexity of the work has outstripped humans' ability to do it.
I recently had an e-mail conversation on this topic with Jeff Einstein, who cofounded the first digital advertising agency, Einstein & Sandom Interactive, in 1984. Einstein's recently published book, "Put God First: A Pocket Guide to Quality of Life in the Great Age of Excess" discusses his beliefs about our culture's addiction to media. He currently counsels advertisers and agencies with "contrarian media integration strategies." It's not surprising, then, that he took a contrarian view to mine.
Jeff Einstein: Once upon a time, before the ubiquity of digital scale, advertisers and their agency proxies were satisfied with the assumption that advertising worked only 50 percent of the time, even if they couldn't identify which 50 percent actually worked. Fade out, fade in: less than a generation after the introduction of digital scale and efficiencies, performance has plummeted in direct relationship to accelerated efficiencies and scale.
So rather than searching for ways to deliver the message more efficiently, perhaps we would be better advised to look for ways to enhance the quality of what we deliver in the first place. Now that we've invited the 800-pound gorilla of commercial television as the soon-to-be dominant feature of our digital lives, we'd better be prepared to feed it.
We've been obsessed with our own ability to measure performance (regardless of the metric) since day one online. Our obsession with efficiency and scale all but eliminates the quality of the message from the consideration set, largely because quality is much more difficult to measure and formulize. We can tinker all we want with metrics and formats, but as long as we remain fixated on efficiency and scale as the keys to the kingdom, performance will continue to decline.
Eric Picard: What I believe you're observing is that efficiency has reached a human scalability roadblock. I believe that technology is about to make a major leap here. Most people haven't wrapped their heads around market effects due to Moore's Law. Very soon we'll be at a place where technology can be used in ways we didn't think about back when ad servers were first invented. Deep analytics, deep targeting, and deep optimization technologies are on the cusp of availability.
JE: Eric, I remember having this same discussion more than a dozen years ago with the young Turks of the dot-com era. I remember suggesting to them that their nascent obsessions with the technologies of performance and measurement were misplaced and not nearly compelling enough to justify any meaningful advertising budgets, especially in comparison to the far richer, far more intrusive branding environment of commercial television. Industry focus on performance and metrics in an era of functionally limitless bandwidth would all but eliminate our ability to sell the intangible qualities of the medium -- typically the most profitable components of traditional media rate cards.
But rather than sell (and charge a premium for) the online experience, we chose to sell performance instead. We unnecessarily and unwittingly narrowed our own universe down to what little we can measure and assess. All of the wonderful technologies you cite above are essential exercises in risk aversion, not advertising. The more scale we engender, the more risk we feel compelled to mitigate or avoid.
EP: There are a bunch of factors that have led to where we are now, and we haven't begun to realize the promise of how technology and advertising intersect. The biggest one was lack of investment in core technologies post bubble burst. The primary parties (DoubleClick, Real Media, Atlas, Mediaplex, Bluestreak, etc.) stopped significant investment in 2000, 2001. And many of the platforms were architecturally obsolete by general technology standards by that time. The online industry froze innovation for years. Pre-Google IPO, very little innovation had happened. And now everyone is playing catch up.
ROI is truly the metric of advertising now across all media, regardless of what anyone would prefer. The challenge for those of us who are trying to evolve the market is to ensure that we capture the value of intangibles in some way (this is marketing after all). I believe we can quantify longer-term value as we can count and compare/contrast across verticals, including traditional media.
JE: The funny thing about intangibles is the moment you capture them, they cease to be intangible. We corrupt them and lose a measure of their efficacy the very moment we try to define them. You cannot remove the intangibles from media without cannibalizing the most effective part of your own business model.
Efficiency cannot generate love, laughter, tears, anger, and envy -- the only effective components of advertising and the only components that engender behavior. Our obsession with ROI is an exercise in arrogance, and what may be good for the major technology players doesn't translate at all into good advertising.
EP: I agree that the creative is incredibly important, but it's only part of the story. We do have ways to capture brand measurements today, and we can take this to the next level. I believe that the moment we're in is sort of like financial services when primary work was done in rooms filled with hundreds of bookkeepers with adding machines. We're within five years of application of algorithmic computer-based optimization of campaigns. That will do some interesting things to the role of media buyers and salespeople.
Next time: we get deeper into efficiency and scale versus human dynamics and other intangibles.
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Wednesday, July 23, 2014