There’s nothing conceptually new about the notion that when marketers (large and small) shift money online they don’t do so in a 1:1 way. A dollar of traditional ad spending doesn’t turn into a dollar of digital advertising. This point was made years ago.
In thinking about this issue I’ve always focused on margins for local sales channels and (newspaper, yellow pages) publishers and the fact that traditional media margins are typically much larger than online.
I was prompted to think about all this again after reading a column in Digiday by Brian Morrissey, which cites a new survey from the Society of Digital Agencies documenting another side to this “evaporation effect.” The survey, of roughly 600 marketers and agencies mostly in the US and Europe, makes two points that may be familiar but are still fairly profound:
–The ad-spending shift to digital “evaporates” 80% of the spend
–Much of digital spending is going into marketing efforts that don’t involve “advertising” per se
Here’s the statement made in the report about the first bullet above:
Monies continue to be shifted from traditional, expensive tactics toward digital— especially earned media — though it’s rarely a one-to-one exchange. More often, a dollar or euro lost from TV and print budgets becomes 20 cents of digital.
The second point is that where brands, agencies and marketers are putting their emphasis online often involves no media buying or advertising. The money is simply going to headcount or services and not to publishers and ad networks.
The survey respondents were larger enterprises but the same observations largely hold true for SMBs. They’re investing in websites, social media, email and SEO and spending less on paid digital media — on “advertising.” While advertising was often the sole focus of marketers offline, it’s just one of several areas of focus in digital.
While everyone wants to rank in search results (SEO) a much smaller group of business owners is interested in paid-search advertising. And while most business owners (50%-70%) now have a Facebook Page very few are buying Facebook Ads.
One obvious conclusion is that the digital publishers (e.g., Google, Twitter, Facebook) are not making money off many of the entities that are using their services. One could describe this as a “free rider” problem. Facebook is arguably the highest-profile example; everyone’s using it but comparatively few are paying.
As I spoke the other day to SinglePlatform CEO Wiley Cerilli I was struck by the fact that companies like his — there are numerous examples — are representative of a “new generation” of services, tools and products that exemplify the findings above. SinglePlatform costs only $495 per year, negligible by comparison to traditional media advertising. But it performs a valuable marketing function (data syndication) with no media buying.
If the market were totally transparent most small business owners would probably be spending much less and emphasizing different things. However they’re time-starved, confused and the market isn’t transparent.
We could look at each category of traditional media and make essentially the same observations as each one confronts the disruption of digital platforms and audience fragmentation and tries to manage the “transition.” In the case of yellow pages publishers, as with others, profits and revenues are still concentrated in the traditional product, even as they emphasize their digital transformation.
Many industry critics explain this purely as a function of “protecting” print or cite the innovator’s dilemma, and so on. While undoubtedly there’s truth in those explanations, the survey and findings discussed above also make clear there’s simply less revenue to be had for these publishers in digital advertising. Dollars “lost” to digital simply “disappear” or get shifted to other initiatives.
These challenges are compounded by the fact that most traditional publishers don’t fully control their own distribution and certainly don’t command the audiences they once did. These are not new points.
In response yellow pages publishers and other traditional media companies catering to SMBs have added services such as website development and social media monitoring to reflect demand in the market but also to “compensate” for the shift in revenues to non-advertising digital marketing services. Even digital-only channel ReachLocal is doing a version of this with its ReachCast product.
As local business owners become more sophisticated over time these trends are likely to accelerate. But because the economics are so different in digital, traditional media companies can only hope to “reclaim” a portion of the dollars “lost” in the migration.
I’d love to hear your thoughts about all this and whether you agree or disagree.