Online Advertising's Second Coming

The mood’s markedly upbeat here at Ad:Tech San Francisco. One marketer summed it up neatly by saying “it’s the Second Coming of interactive advertising.”

Nine thousand attendees, 500 exhibitors, and more parties than you can hope to make the rounds of are proof positive the industry’s thriving. The conference moved fluidly and quite successfully into a larger, convention center venue. In previous years, Ad:Tech’s weak point was allowing known spammers, shady affiliates and online casino ventures to exhibit cheek-to-jowl with the reputable and established vendors. Despite the pressure to fill a much larger space, the bad actors, while not altogether absent, were at least not at all a noticeable presence.

Yet there are some notable absences from industry Goliaths on the show floor. Where are MSN, AOL, and Yahoo? Yes, Google’s here, but maintaining a pretty low profile.

The Good Kind of Problems

The show was a good opportunity to spend quality time with agency executives. All are happy business is booming, but with that comes a spate of 1998-esque problems.

Chief among them is recruiting. Over lunch, AKQA Chairman Tom Bedcarré bemoaned the difficulties of trying to expand his shop from a current 400 employees to 500 by the end of the year. Avenue A/Razorfish’s Mark Stephans, a managing director and VP, agreed (over another lunch) that recruitment, retention and training and among his chief concerns. Even when you can find the people, he said, developing in-house training programs presents a challenge for agencies. Inter-agency poaching, meanwhile, is rampant.

One of the first business cards pressed into my hand this Ad:Tech was an executive recruiter’s.

Smaller shops have the same lament. Alchemist Media President Jessie Stricchiola said she was spending so much time hiring and training new staffers, only to lose or fire them, she’s resigned herself to putting in (even) longer hours herself rather than devote more time to staffing her growing business.

Cherry-Picking New Business

The agency executives I’ve spent time with this week are unanimous on another point: RFPs have never come in so thick and fast. And most of that new business is from brand advertisers, particularly CPG companies. Agencies are also saying they’re dealing with a new client demographic: senior management and CMOs. This thrusts ad agencies into a new role as educators. They’re training new clients in the possibilities and procedures of interactive advertising and marketing, often at the site-building level. One executive creative director told me his agency’s newest challenge is teaching customers building a sophisticated Web presence that it’s akin to building a new retail establishment. “I tell them they can alter it, of course,” he said, “but also insist they go with something they’ll be able to live with for at least the next three years.”

“Search has topped out,” insisted Bedcarré, perhaps an understandable sentiment given AKQA is one of the industry’s leading creative shops. But certainly advertisers and agency executives are paying much more mind to social networks, video, gaming and branded entertainment.

Avenue A/Razorfish’s Stephans attributes this to the need for relationship-building on the part of brand advertisers and a move away from the direct marketing mindset that was long prevalent online. “CPGs realize they have to build and extend their relationships with customers,” he said, “and those customers are online.”

Frederick Marckini of search marketing firm iProspect agrees, but understandably isn’t quick to dismiss search from the CPG marketing mix. “CPGs are returning to search because this is where they believe their audiences are. They now believe if they’re not here, they’re not marketing. These companies are knocking down our doors these days.”

Ad:Tech sessions reflected the rise of online CPG marketing. Companies such as Tribal DDB client Clorox presented. Tribal is also gearing up a major new Web presence for Kingsford, the charcoal briquette company.

With a new influx of high value advertisers, it’s not hard to be taken in by even the rosiest of predictions. Sequoia Capital Partner Mark Kvamme set the tone with a keynote address in which he discussed a Golden Age in online advertising and retailing. He pointed out that 30 percent of all Korean retail transactions occur online thanks to that country’s 68 percent broadband penetration, compared with 28 percent in the U.S. If U.S. broadband penetration reaches 68 percent, said Kvamme, e-commerce would skyrocket to become a $1.2 trillion industry.

That’s a big number — even by Google standards.

Kvamme is also bullish on the online advertising industry. Thirty-two percent of people are reached by TV, to which 38 percent of ad dollars are allocated. The Web, meanwhile, reaches 32 percent of the population but captures a mere five percent of ad dollars. TV CPMs run circa $64, contrasted with $10 to $30 online. That disparity is what caused Kvamme to make a very bold, and very optimistic, prediction indeed: Internet advertising will be worth $35 billion in 2008, very nearly double the $18 billion predicted by the IAB.

Clearly, things are good. But can they get that good? I’d love to hear your thoughts.

Meet Rebecca at Online Video Advertising Forum in New York City, June 16, 2006.