Frenemies: The Epic Disruption of the Ad Business (and Everything Else) (32 page)

Mobile phones pose another existential threat. They have already fundamentally transformed the ad and marketing business, and when 5G replaces 4G and 3G speeds for mobile devices sometime in the
next several years, nearly matching the broadband speeds of cable or telephone fiber, the impact should be profound. A movie can be downloaded in an eyeblink. Annoying download waits will disappear, providing a boost to all video, including video ads and virtual reality. Driverless cars, which must ping other cars on the road many times each second to avoid crashes, will receive a boost, as will robotics. The varied devices that make up the Internet of things will seamlessly communicate. A decade ago, most digital content was text. By 2016, half was video and photos. Advertisers know that the most effective mobile ads engage the consumer with video. This experience can only be enhanced with 5G.

Once, when information about products was scarce, consumers learned about products from advertising. The consumer was hungry for information and traded their time for it. Today, as marketing consultant Gord Hotchkiss wrote for online publication
MediaPost
, “The basic premise of advertising has changed. Information is no longer scarce. In fact, through digitization we have the opposite problem. We have too much information and too little attention to allocate to it. We now need to filter information.” Advertising that attempts to sell feels false, intrusive. Available ad-free options—Netflix, HBO, Showtime, YouTube—reinforce the desire to watch television the way we watch movies, without interruption. This desire is further reinforced by social networks, which accustom citizens to two-way communication. The new “central verb for us in marketing is: listen,” Hannah Grove, the executive vice president and CMO for asset manager State Street, said at a
Financial Times
marketing conference. “We're all humans and we don't want to be marketed to. We've gone from a cathedral to a marketplace.”

What we definitely do know is that sending ad messages to our very personal mobile phones, whether over 5G or 4G, is fraught with both danger and opportunity for advertisers. Terry Kawaja of Luma
Partners holds up his iPhone and says, “This thing fundamentally changes everything. We have never had a media channel like this one. We've never had a media channel that's personal, that's gone with us. The ubiquity—everyone has a phone. And the persistence—it's always with you. And the functionality—I can buy something online, I can get to a Web site, I can make a phone call.” He is optimistic that in the long run advertisers will figure out how to better market their products. But he concedes the peril when he adds, “Advertising was constructed on the notion of interruption.” In an era of mobile phones and social networks, word of mouth becomes the killer marketing tool. Power has dramatically shifted to the consumer. Or as NBC Entertainment chairman Bob Greenblatt declared at a late November 2017 forum sponsored by his network, “Consumers hate advertising. People are running away from advertising in droves, and so that, to me, is the crux of the problem. How do we stop that from happening?”

Artificial intelligence poses another existential threat to advertising. Rishad Tobaccowala thinks of AI as the third disruptive era, a “seismic shift” as profound as the introduction of the Internet browser in the 1990s, followed by the iPhone in 2007 and what it meant for social networks. All the data AI collects in the cloud from search and social networks and stores allows “the machine to figure out who to talk to” and all these ingredients “write software with the ability to create an ad.” Or an individualized message. Tobaccowala's prognostigations are supported by a late 2016 global marketing survey that reported that more than half of CMOs expected AI's impact on marketing and communications to exceed the impact of social media.
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Just the increased use of virtual assistants like Amazon's Alexa or
Microsoft's Cortana will translate to what they call “programmatic consumption.” Instead of a consumer spending time selecting a product and placing an order, these will be automated—“in other words, purchase decisions will increasingly be made by computers, rather than by consumers standing in shops.”

Joe Schoendorf, a veteran venture capitalist at Accel Partners in Silicon Valley, imagines a time when AI installs software in your refrigerator. With bar codes on the bottles and containers, the sensors in the refrigerator will send replacement orders to your store when the milk is low. Or will tell you “of a generic product that can save you eighteen percent. How is an agency going to market to machines? And when AI is fully developed and you have machines talking to machines and machines can produce ads, what's the agency's value now?” More ominous for the agencies, he adds, “I think Amazon has already figured this out and the Amazon Dot”—a voice-controlled device connected to Alexa—“is the first incarnation of this strategy.”

James Whittaker at Microsoft says, “In a world of data, you may not need ads.” Machines will determine the cheapest prices and take the guessing out of deciphering what the consumer wants. “Once you know the consumer's intent, why do you need a creative ad?” Or an agency, since, he says, the store or the brand can communicate directly with the consumer, ushering in what marketers hail as one-to-one marketing.

This brave new world is not imminent, concedes Whittaker. Figuring out a consumer's intent “is revolutionary,” he says, but change usually occurs “incrementally.” And maybe machines will be unable to decode a person's intent. Or unable to create marketing messages that move consumers emotionally. Or to supply the human judgment we call wisdom.

Enter programmatic advertising, which relies on AI. While programmatic has grown more slowly than some predicted, and has been
successfully resisted by Les Moonves and TV network sales forces, today a majority of digital display ads are automated, and a 2016 study by Zenith Programmatic Marketing Forecasts predicted it would swell from $5 billion in the United States in 2012 to $64 billion in 2018, although its growth lags in the rest of the world.

“Our Manhattan Project is programmatic advertising,” says Bob Pittman, CEO of iHeartMedia. “If we invented radio today we would call it digital. Yet we still sell advertising the same old way.” To automate sales is quick and easy and reliant on a wealth of data, he says. Unlike TV, whose big audience is at night when viewers are home, his radio audience is all day, so he believes he has a shot at locating consumers when they are about to shop, thus demonstrating to advertisers the effectiveness of his radio ads. If programmatic buying spreads to all platforms, including television, many questions arise, led by: Since the machines buy audiences, not space on Web sites or TV channels, how do marketers prevent their friendly ads from appearing on unfriendly sites, as happened in 2016?

A central future question
for marketers becomes: How to reach consumers with messages that don't feel like an annoying and interruptive sales pitch? Too slowly, the industry has begun to address this question. Think how slow the ad world has been to stop relying on annoying banner and pop-up ads. Think of those TV ads that hog about twenty minutes of each cable or broadcast hour. Think of the products you just purchased online that appeared constantly in ads on your Gmail screen. Why did it take Google until June 2017 to announce it would terminate these?

Designing the Apple Store as a tourist attraction as well as a service center has been a brilliant marketing tool for Apple. Starbucks stores attracted more traffic by creating a community spirit with free Wi-Fi.
Elon Musk's Tesla does no advertising, yet news of this innovative and stylish electric car has propelled Tesla's stock above that of most other auto companies. Advertisers have begun to recycle the “Brought to you by” approach once so popular that in 1950 three of the top-rated shows on television were NBC's
Texaco Star Theater
, the
Philco Television Playhouse
, and
The Colgate Comedy Hour.
The impediment to a sponsor paying for a half or full hour of programming is, of course, financial. The cost of each episode of a one-hour drama would be north of $5 million, and a lot more for a hit, whereas the cost of producing and placing a thirty-second ad would be about $300,000.

Today, as we've seen, instead of the
General Electric Theater
, General Electric offers
Breakthrough
, a series it codeveloped with the National Geographic Channel directed by such renowned storytellers as Peter Berg and Ron Howard. The cost is not extravagant. Instead of a “Brought to you by GE” banner announcement at the beginning of an episode, it weaves GE scientists into the script. This form of product placement has enjoyed a comeback. Fox's
Empire
took it further: Pepsi didn't just pay for the sight of a Pepsi bottle; Pepsi was integrated into the story line when an actor competed for a Pepsi Performer contract. More blatant sales pitches were adopted by former ad man Donny Deutsch. On his USA Network show
Donny
, his character faces the camera and rhapsodizes about Hak's BBQ Sauce and Purity Vodka, two sponsors. Deutsch's pitch is bolder than the Jack Benny show when Benny extolled Lucky Strike cigarettes or Jell-O.

In the future, Les Moonves predicts, there will be more sponsored shows on CBS, more product placement, and more experimentation with shorter interruptive ads, with six-second pop-up ads replacing thirty-second commercials. But he did not plan to follow the lead of NBC, Fox, and Turner Broadcasting, who vowed to reduce the number of commercial minutes and charge a premium for what they assumed was more exclusivity. “I think our ad load works,” he says,
stressing that 65 percent of CBS's viewers watch their programs in real time. However, Fox did produce some contrary evidence: by reducing its ad loads by 20 percent for the Teen Choice Awards in August 2017, advertiser prices went up and the show produced one third more revenue than it did in 2016.

Inevitably, other marketing moves will substitute for interruptive ads. Witness popular Red Bull concerts, or brand names on the shirts of professional sports teams or their stadiums and arenas. Still another surging form of marketing, IPG's Michael Roth thinks, will be rewarding consumers with discounts, as long as they're “relevant” to the particular consumer. Advertisers will know more about individual consumers—for example, what they search for—allowing car manufacturers to target potential car buyers. “Artificial intelligence will say, ‘This guy buys a car every two years.' Six months before the two years come up, they inundate him with messages: ‘We know it's time for you to be looking for a new car. Here's two thousand dollars off if you come in next week to buy a car.' That's relevant.” Digitally connected cars will have smart windshields that flash to the driver who is low on gas where the nearest gas station is located, along with an offer of a free coffee. Or a food order can be placed and picked up at a nearby fast food restaurant. Of course, exchanging intrusively annoying ads for intrusively annoying marketing messages may be no less irritating to consumers.

At the same time, native ads are becoming ever more craftily camouflaged. Gary Vaynerchuk writes, “Eventually ads won't look like ads anymore; they will all be natively woven into the platforms, and we'll consume them without even knowing it.”
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The ANA estimated in mid-2016 that spending on native ads would grow from $13.9 billion in
2016 to $21 billion in 2018. “To a significant extent, native is the future of advertising for us,”
New York Times
CEO Mark Thompson says. “Adjacent advertising, which is more than a century old in newspapers and is when someone is looking at content and their eye can be drawn to an advertising message which is adjacent to the content, that is a model of limited value in the world we're heading into. There is no sort of white space on a smartphone screen. And so our expectation is advertising will be part of the content stream people consume.” He predicts that both the interruptive ad and the adjacent ad model will fade.

Although Thompson believes the
Times
has hired the journalistic storytellers and has advertiser relationships that allow it to build and sustain native advertising, critics raise red flags. They chorus: like advertorials, these can compromise the integrity of both the media and the brand. Another enormous impediment, says Rob Fishman of Niche, a software company that recruited influencers to market native ads and was sold to Twitter, is scale. Because native ads have to be shaped differently for each platform, targeted to various audience segments, are not as repeatable, and each has to endure a laborious storytelling process, he says, “Native is the enemy of scale. The monolithic ad model breaks down.”

As we've also seen, more and more, brands latch on to the idea of championing a larger movement or cause, extolling the good they do. This is not entirely new. Volvo in the 1980s chose not to compete with sleek car designs but to promote car safety; Ikea democratized stylish furniture for those with modest incomes; Patagonia flourished by conveying to consumers that it had a social purpose, using recycled bottles to make fleece jackets, employing solar power for their headquarters, donating a portion of their revenue to improve the environment. But the growing unpopularity of big business has prompted brands to dress differently. Every year Edelman issues what it calls its Trust Barometer, a global survey contrasting the level of trust toward
business (and other institutions) of the “informed public” versus the “mass population.” In 2016, they reported a “significant divide,” with nearly two thirds of the “informed public” trusting business and other institutions and under half of the “mass population” sharing that trust, with the divide widening as the income gap spread. Brands that promote the good they do—as Unilever and P&G and Colgate did—seek to demonstrate that they value more than just making money. There's a money reason for this as well. Vaseline or detergents or toothpaste are commodity products, with little to distinguish them.