Linear advertising models are a thing of the past
In 2008, Maurice Levy, then Publicis Groupe chief executive, said the business model for the advertising industry is outdated. He was right back then, but the advertising industry is still around more than a decade later, despite their business model being no less obsolete.
Let's first have a look at the reason why it's outdated. From the very beginning, online advertising was built with classical advertising as its blueprint, only adding the promise that everything can be tracked (early) and better targeted (later). This way, a lot of underlying assumptions went into the foundations of the then-new industry.
It was designed with linear models like Shannon-Weaver in mind, which were developed for the age of mass media and mass communications. In this model, the medium (or channel) gets paid for delivering the message from the sender to the receiver. Media attract eyeballs through their content, and advertisers pay for them. Media channels were scarce and thus valuable – they could charge a premium, in some cases on both sides of the equation: the audience paid for (premium) content, and advertisers paid for (premium) audiences.
The web replaced scarcity with abundance
With the advent of the web, the scarcity of channels was replaced by an abundance, thus setting both revenue streams under pressure. The more content became available, the less consumers were willing to pay for it. And as online audiences grew, the rates for advertising to them fell as well. But this was only the first step. Enter Google and their famous Adwords business. Using a highly efficient auction model, Google undercut advertising rates drastically and increased performance even more dramatically.
With Adwords, the web began eating away market share from other advertising channels. Google had added an interactive element to the game, with the user providing a search keyword that could be auctioned off to the highest bidder. This was revolutionary and still is today. This model is now copied by Amazon, which is a huge product search engine in itself, amongst other things.
Facebook cloned the Adwords model early on, but cannot capture consumer intent like Google and Amazon can. Instead, they went down the demographic targeting route, with their treasure trove of user profiles. Demographic targeting reached new and unknown granularity through Facebook, allowing to address very narrowly defined target groups.
In essence, all three are now taxing advertisers on a global scale like no company ever before. The scarcity they monetise so effectively is consumer attention. In a world where both content and channels are abundant, attention becomes scarce and thus valuable. The three web giants mass-manufacture attention and sell it to the highest bidder.
A race to the bottom
But does it make sense for advertisers to pay Google, Facebook and Amazon for the consumer attention and intent they capture? No, it doesn't – at least in the long run. We've seen a race to the bottom on many levels. This is not sustainable, for a variety of reasons.
First, the user experience suffered dramatically from advertising. Almost every product so far has been ruined by ads. Bad UX sends all parties involved into a downward spiral. Second, advertisers are losing their margins to the oligopoly of Google, Facebook, and Amazon. They are facing the tough choice between losing revenue (if they don't advertise) or margin (if they do).
Third, demographics-based advertising is bullshit (and to an extent, has ever been). Lifestyles and consumer preferences are diverse these days. It makes way more sense to base messaging on ethnography than demography. I'm hesitant to call this advertising any more, so I'm switching to messaging here. Facebook has a point in this new game, since it also does ethnographic profiling.
In a world that is better described by ethnography than demography, it is wise not to advertise on foreign channels and platforms, but to build your own. Gather a tribe around your brand, provide them with valuable content and find a way to capture your share of the value you create.
By the way, should we continue to talk about brands? Perhaps yes, if we consider the origin of the term branding.
What will remain of advertising
To be clear, there are certain elements of advertising that will remain and be repurposed. Storytelling, for example, has been around forever, since the advent of language itself. Branding is also quite ancient. But the role of promotion in the marketing mix is changing a lot, as well as price, place, and product.
Media buying? Depends on the media budget, channel mix, and audience. Will probably decline over time. Creative? Will morph into design.
In general, marketing (and what remains of advertising) will be build into the product. It won't be something that is applied at the end of the linear product pipe, to push the product into the market, although the need to push might still be felt and fulfilled.
The linear advertising models of the past won't survive the digital transformation. Replicating them in digital form is futile. The new models take the shape of the loop, where the user (consumer, human) has an active role in the process of value creation. Advertising is a one-way street, but messaging is a constant back-and-forth.
Promotion that's not broken or outdated looks more like messaging than like advertising.