17 Sep 2007  Research & Ideas

Broadband: Remaking the Advertising Industry

Evolving from the Marlboro Man in the 1960s to the Subservient Chicken in a recent Web campaign, advertising is undergoing a radical transformation. Harvard Business School professor Stephen P. Bradley, who is cowriting a book on how broadband technologies are remaking many industries, discusses how advertising is responding to the challenges. Key concepts include:

  • Traditional advertising vehicles such as television are becoming less interesting to advertisers because of fragmented viewership and inadequate user data.
  • Broadband technology is becoming more important to advertisers because of its ability to move the consumer closer to a transaction decision and to deliver clearly segmented audiences.
  • The advertising industry is wrestling with this transformation in part by merging with media companies and by launching creative ad alternatives.

 

Historians have the wisdom granted by time. But for researchers trying to understand current events, especially in the helter-skelter Internet age, the world can change completely before the digital ink dries on the manuscript.

That problem certainly confronts Stephen P. Bradley, the Baker Foundation Professor at Harvard Business School. Bradley and coauthor Nancy Bartlett are in the midst of writing a book looking at how broadband technologies are reshaping industries. We asked him to take a few minutes to talk about the project, his insights on how broadband is remaking the advertising business, and the difficulties writing about such a moving target.

Julia Hanna: What is the subject of your book in progress?

Stephen P. Bradley: We are looking at industries that are being transformed by broadband such as the news and information industry—the younger you get, the more you get your news strictly online. Who reads newspapers? Old guys. So this is an industry that is being dramatically transformed.

"The reality for the advertising industry is that the old model is broken."

As broadband enables new forms of entertainment and new ways to consume and manage media we see radical transformation in the music and television industries as well. Their audiences are fragmented and people are demanding mobility, immediacy, and control over their media consumption.

This makes some industries' traditional business and delivery models no longer viable. The networks, for instance, struggled with a time-shift in television viewing as digital video recorders (DVR) became commonplace. With broadband they must now also contend with a place-shift. The family no longer sits in the living room together with all eyes focused on the television.

Q: How about the impact of broadband on advertising?

A: Advertising is at an interesting crossroads. Most of the money is still being spent on traditional advertising such as television. But with new opportunities to get in front of, and more importantly interact with, the audience we have seen a growth in online advertising.

The majority of an online ad budget is spent on search advertising, which is more effective than banner advertising at driving traffic. The ability to place your ad on the screen exactly where someone is searching for information is profound. And with broadband, when an ad pops up on your screen and you click it, there is the capability to show full motion video, which some people will find compelling. This is going to be an increasing part of the advertising world, but it's still a pretty small percentage.

Beyond search advertising, marketers are using the Internet as part of broader, more interactive campaigns. Most advertisers have some way to have online links even in ads that aren't online. For instance, many magazine ads prominently tell you, "Here's our Web site to get more information." TV news programs always send you to their Web sites. Why? Traffic on the Web site is convertible to dollars if you can translate the traffic into transactions. That's the idea, to get you more compellingly engaged. Even the standard 30-second TV spots are often used to capture the attention of the viewers and then direct them to the Web with the intent of bringing them closer to a transaction.

Most recently, advertisers have tapped into the popularity of social networking sites like MySpace and Second Life to create intriguing campaigns and an important presence.

Q: Why is dissatisfaction increasing with traditional TV advertising?

A: Advertising clients are not always sure of the ad's performance, because they're not sure that [a television show is] being watched. And they're not sure who is watching the show. There's a lot of discomfort with what they're actually getting in terms of audience and even disagreement on how to measure that audience and place a value on it. Should a person who watches the program at its original time be valued in terms of cost for ad space the same as a person who watches it 3 days later via his DVR? This same problem is cropping up within the online medium as well.

Q: How are advertising companies changing in response?

A: Advertising companies have been transformed because they are now media companies. The dollars they receive from their overall media businesses are much higher percentages compared with the pure advertising portion of it. It's the connectedness between the traditional ads and online that counts. In the online world you can link your advertisements to action; that's the difference. If you're willing to click, it links you to a potential transaction or at least to get more information, which can then pull you in further. The ease of broadband gets people much more integrated and interactive, much closer to doing a transaction.

So the reality for the advertising industry is that the old model is broken. The most effective advertising medium for decades has been television. But this traditional advertising [vehicle] is getting more expensive while also reaching fewer people. People may be watching more television hours, but their attention is spread across many more channels.

The question is, now that it's so fragmented, how do you get an effective response? The answer is, to be able to go directly from that ad to an item. We will have more interactive television as we go to broadband—we'll be able to click on something on the screen and get information about it. I suspect we're just on the beginning of these sorts of changes.

Sites like YouTube and MySpace are now owned by major media companies—Google and News Corp., respectively. The media companies haven't figured out how to monetize these sites yet, but they're pretty convinced that some form of advertising is going to build up because of the traffic that's inherently there. Since we don't know how to capture the value yet, people are prepositioning to capture it.

Q: With all these advertising options available, how do advertising/media firms and their clients guard against spreading themselves too thin?

A: Given all these new forms there is more ad clutter than ever, and marketers are trying to bypass it. Companies are getting more sophisticated about what they're investing in—shifting to product placement, for example. And not just in television programming but also in new areas like gaming.

"It's a different kind of creativity."

There's all this experimentation on the Internet because the number of people using the Web is going up all the time. Most people have broadband connections. In the United States, almost half the households are using broadband.

We expect that advertising dollars will increasingly go to these alternative venues, due in part to the lack in productivity of the advertising dollars in traditional newspapers, magazines, and television. The ability to focus your broadband advertising on segments like MySpace, and to create viral marketing, is actually much less expensive.

Say you're an advertiser and you want to reach the MySpace population segment. Do I want to be advertising on television, or do I want to somehow be advertising on MySpace? Pretty clearly you want to be advertising on MySpace. On the Internet you can target the demographics of the segment you're looking for. And there are a variety of mechanisms for identifying them.

Q: BMW Films has received a lot of praise. Is this a good example of broadband advertising?

A: It's viral marketing. The idea is that if you can create a phenomenon that generates interest on YouTube, you'll get this viral effect where everybody has to see this particular video.

In the political realm, Barack Obama has been able to raise money with a kind of a viral marketing. He creates a certain excitement, which gets followed on the Internet. Then he puts out a call for funding, and he's got thousands of people giving 100 bucks apiece. Hillary Clinton's fundraising is largely traditional big-donor contributions.

Q: Another example of the power of viral marketing is Burger King's Web-based Subservient Chicken campaign, which features a person in a chicken costume performing actions commanded by the user.

A: That's exactly the kind of shift happening in these media companies' resources—figuring out how to do that kind of marketing. It's a different kind of creativity, quirkiness, and is very much focused on a certain age demographic.

That's what we're wrestling with in the book, trying to see how big a change in the advertising industry this might be. It's still a teeny slice, but the importance of viral marketing cannot be overstated. Actually it is an example of the critical and growing importance the audience has in giving information traction. Whether it be silly or controversial, local or global, the users are often the ones who ultimately put it in the limelight. And with the Internet as the medium, that attention is immediate and far-reaching.

Q: But how do advertisers take advantage of viral marketing?

A: That's such a hard question, because how do you tap into something that comes from who knows where?

If I'm a media company like WPP Group and I'm dealing with a major account, I would probably want to put a measurable amount of that account into an event or a campaign that would have this viral effect. You may not be successful, but there are probably lots of great things that will have this kind of excitement and get a lot of traction.

Would it be more effective to spend my money online rather than in another car or beer ad on television? Increasingly, I think, the answer is that marketers are realizing that people are no longer sitting in front of the television screen and are open to more creative options. They will increasingly go to where the audience is—social networking, video sharing, and virtual world sites. We're also seeing advertising tapping into the blog and podcast phenomenon. This is a challenge for large companies like WPP. In industry consolidation, different companies have been combined, and the question is how to get the Internet piece positioned relative to the traditional piece happening.

We are writing this book at such an exciting time when things are changing, and there is such a degree of uncertainty and possibility. While we can look back at some transformative changes that have occurred such as downloading of music and getting news online, the future path is still unfolding. This book is intended to be provocative as we develop scenarios of how the world might unfold.

About the author

Julia Hanna is associate editor of the HBS Alumni Bulletin.