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The Ad Dollar Tug-of-War

The often sited truth in advertising states that half of all ad dollars are wasted, but you can never tell which half.  Well, that is changing, and everyone is excited about all of those ad dollars moving to measurable media instead of being flushed down the wasteful “old media” toilet.  But what if, instead of moving those wasted ad dollars to more productive channels, they just don’t get spent?  What if overall ad spending just gets cut in half over the next decade?

Could this happen?  I think some decline in spending is likely as marketers work their way down the ROI curve.  The fact is that increasing reach and targeting has diminishing returns.  You experiment around, and spend on the stuff that works really well.  Eventually that gets tapped out, and you find other stuff that works, and that gets tapped out, and at some point your run out of productive media; the marginal cost of acquiring a customer exceeds lifetime customer value.  The rational marketer at that point will stop spending.

Now, accounting for spending is not nearly scientific enough to accurately calculate ROI.  Lets take the example where an ad runs on radio and TV, and the customer that saw those ads clicks through on CNN.com to purchase from a banner.  Were the TV and radio dollars a waste?  It sure looks that way to the marketer, how has no idea who saw their old media ads.

One direct marketer I know, a customer of Pontiflex and ContextWeb who I can’t name, was getting complaints from radio stations that they weren’t getting a fair allocation of CPA dollars.  They felt they were doing the hard work of acquiring customers, and the web banners were slipstreaming and getting all the credit.  So as an experiment the marketer apportioned more of the spend to radio, and customer acquisition fell off a cliff.  Then they steered those dollars back to the net, customer acquisition recovered, and the marketer told the radio guys to stop complaining.  This was a rather blunt instrument to use, and will be obsolete in five years.

There is emerging technology that can track TV ad viewing and tie it back to purchase on the net.  With Stitcher and Pandora and other IP radio services, even radio ads can be tracked to a purchase or other success event.  So marketers may one day actually know what works and what doesn’t, to the last detail, and stop wasting dollars.  And that might be deflationary.  But countering this will be a keyword-esque bidding up of the quality content that delivers results, entirely countering the deflation.  This would turn publishing into a true meritocracy, where the most productive content gets the most ad revenue, and the least productive gets the least.

This is a very fertile area for innovation, and one I am tracking carefully as the dollars at stake are staggeringly large.