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Summary:

Following our piece yesterday about the continued growth of online advertising, let me add to Om’s practical perspective with my own take on where I believe the opportunity lies for those who are set on capturing some of those future ad dollars. What I’m about to […]

Following our piece yesterday about the continued growth of online advertising, let me add to Om’s practical perspective with my own take on where I believe the opportunity lies for those who are set on capturing some of those future ad dollars. What I’m about to say should be very obvious to most by now, but I believe it bears repeating.

Putting aside the issue of whether or not online ad spending will consistently grow unabated for the next 20 years, it’s safe to say that the total pie will be much bigger 10 to 20 years from now. That said, I firmly believe it is equally reasonable to assume that a big chunk, if not a majority, of future ad spending will go into online ad models & formats that do not yet exist. The big reason for this, in my mind, is due to the emergence of social media… and the fact that social media is not mass media.

As I have already written much about, social media is a new medium in its own right. As such, successful commercial exploitation of this new medium requires the development of new business/advertising models. This has been true for every other new medium that has been adopted at large scale throughout history. Yet, unlike mass media before it, social media introduces the very unique element of the previously passive audience becoming both producers and distributors of media. From a marketing perspective, this means that the people themselves will necessarily have to become an integral part of the brand communication strategies and processes.

Now, couple what I just mentioned with the prospect that the majority of future ad spending growth will come from traditional brand advertisers that, up until now, dominated traditional media budgets (e.g. TV & cable, radio, newspapers & magazines, etc.). But here’s the real quandary… while it’s easy to reallocate budgets, these brand advertisers face a problem because they cannot simply transport their traditional ad models (optimized for mass media) to the new world of social media. Further exacerbating the problem is the fact that even today’s dominant interactive ad platforms, like Google’s highly efficient AdWords/AdSense system, or Yahoo’s display ads, do not extend naturally into the social media space.

What this all boils down to is a growing and substantial market need for new ad models and platforms. Granted, there’s a good chance that the dominant players of today, like Google and Yahoo, will end up being the ones to develop the new models. But I’m an optimist, in the entrepreneurial sense… I believe it’s far more likely that new players will develop such innovative platforms. After all, 5 years ago, Google wasn’t even a player in online advertising.

Put another way… 10 years from now, my bet is that a substantial and material share of the huge online advertising pie will be captured by players we do not know of today. The real challenge, as famed author and management guru Geoffrey Moore points out, is to develop marketing solutions that are highly scalable for social media. I agree, and I also agree that such solutions are not in the marketplace today. But while Moore doubts there will ever be scalable solutions for social media, I on the other hand believe it’s a problem that actually has several fundamental solutions… many of which will start coming to market in 2007.

  1. I totally agree with you that future online ad will be spent in different segment then today and also social media is one such strong candidate but for me atleast it is not clear what exactly social media will mean in 10 years from now i definitely dont think it would be same format as it is today .so key question is how the media looks like and what are the source of revenue for that media it may not even be online ad .

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  2. Interesting article, and some thoughts:

    (i) I am not certain the Total Pie gets bigger, as online advertising is intrinsically more efficient all the way across the value chain – so in theory costs fall but volumes cannot increase as attention is finite. No doubt though that the Online Pie is set to grow rapidly. I wrote on this issue at the end of this note here

    (ii) I absolutely agree the new medium will find a new voice, I note that further up in the post referred to. I would also note that social media is more than just the social networking.

    (iii) I am not sure its the traditional advertisers that will grow the market – what the reduction in cost across the value chain has done is reduce the barriers to entry for small guys who up to now have been classifieds bound…and this has only just begun to be felt imho.

    (iv) like you, I think new plays are out there, and I have worked with some of them. To me Google et al are “mass production” ad engines, the niche plays that really understand the customer have yet to come to maturity.

    (v) Who will win out…well, I believe that the Web 1.0 guys will continue buying their way into Web 2.0, I think YouTube was Google’s “Netscape Moment” when it is clear a new world is on the starting blocks, and the Old Hands didn’t build it. Thing is, all teh Old Generations (Telcos, IBM, Microsoft etc) can also buy their way in – but there will be some stuff that is just not for sale.

    (vi) Scalability needs automation, automation needs metadata and etadata allows new ways to search – whoever defines the metadata in a vertical will win the “metadata wars”

    Off my soapbox now…:)

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  3. One last thing…I also think there is a place for AntiSocial Media

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  4. I could not agree more – what we are witnessing today is simply the tip of the iceberg of online advertising and not its entirety (as some pundits would have us believe). It will be interesting to see whether Adsense, for example, retains its popularity as a provider of online advertising solutions 10 years down the line.

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  5. Rob

    You literally just hit the nail on the head, I could not agree more. Everyone at this point is pushing into the same old advertising model. In fact thats a general trend on the internet. Someone does something successful and then every man, woman and his dog join in. What is going to be interesting is to see these new innovative methodologies of advertising that leverage the interactive nature of social media. I said it in Om’s last post about ad’s but watch out for netus because we are definitely trying to embrace change. It may be a risk, but as you have clearly pointed out in your article, its a necessary risk. Fantastic post!

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  6. It’s always safe (and, so, tedious) to predict that, gee, things will be way different than now in ten years.

    OK fine.

    But its worth noting that while social emdia has got everybody buzzing these days… social media has had everybody buzzing since literally day one of the Internet. Does no one remember GeoCities, Tripod, et. al.? Does no one pause to consider that those 1.0 social media companies were the Next Big Thing but then fizzled (as businesses, not as investments) because in fact they couldnt support ad models (due to the natue of the content)? And that today’s 2.0 social media companies are struggling exactly the same way?

    Plus ca change?

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  7. Social media has been around since Babylonian times, at least :). There is a great book called the Victorian Internet to read of one ever falls into the trap of thinking this is all new!

    The point re Web 1.0 approaches is thus well made, but what is different now is the order of magnitude jump in ‘Net penetration and the order of magnitude(s) drop in transaction costs since 2001.

    Not to mention that its simple-to-useness (can I patent that term?) is much higher, so people use it a lot more.

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  8. Robert, you are right on!

    The shift from “mass” (one to many) to “social” (many to many) is absolutely fundamental to the transformation shaking up the media world. Google has demonstrated that harnessing user-generated content (ie, blogs and web sites) as advertising inventory can be unbelievably profitable.

    A lot of people (myself included) believe the next evolutionary step in online advertising will be harnessing user-generated content syndication. As content moves from a single-point, destination web site to a distributed network spread among millions of web sites (ie, “to the edge”), advertising models will need to adopt. Two companies that immediately come to mind who are positioning themselves for this shift are Feedburner (ads inserted into RSS feeds) and SplashCast (rich media syndication where the line between content and advertisement becomes blurred).

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  9. Robert, great post!

    I would love to hear you and your readers thoughts on how the DMCA and copyright issues will affect or restrict advertising models for user-generated content.

    Grand Egress commented above that today’s 2.0 social media companies are struggling because they can’t support ad models due to the natue of the content. Grand is correct.

    How do you create an advertising model for user-generated content and not run into issues with the DMCA?

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  10. Great article and comments. One thing I think is important to consider because it really adds some perspective to the macro view is that the line of deliniation between personal/private/social/community are becoming blurred or nonexistant from an advertising perspective by virtue of the medium. Advertisers ability to target consumers is now almost infinite whereas in the past was totally dependent upon irregular market obstacles like when a certain program would air on television would be when the most efficient time to target that demographic is whereas now that demographic can be targeted while they are at work, home, remote via pda or phone, etc. The opportunity for an advertiser to hit that specific demographic went from maybe 15 mins a week(guessing how much advertising is available in a 60 minute program) to 24 hours a day. That certainly changes the advertising landscape in the sense that with so much ability to deliver advertising you in essence have more supply and greater customization ability in msging that will, in theory, drive more utility in the future dollars spent by advertisers compared with todays environment. This isn’t new though and has been occuring in the space since its inception but it is interesting to think how much further is it going to go/evolve.

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