Don’t shoot the messenger – be watching its every move

In this first of a two-parter, Chris Ingram explains why adland has much to learn from the way Google carries on its business

Chris%20IngramIn 2003 the internet was the eighth largest medium in the UK, with revenues of £395m. This year internet revenues will be some £2bn higher, moving the medium into second place (WARC) behind only television, and by 2009 my estimate is that revenues will overtake TV, coming close to £4bn in total revenues.

Whichever way you look at it, this is phenomenal behaviour, and way beyond most people’s predictions. I came across a speech of mine the other day that had been delivered in 2000; it predicted the internet would become a hugely important marketing, sales and distribution channel, but as an advertising medium, “it would never take greater than a 5% share”. So much for punditry.

It is, in fact, easy to draw the advertising wagons into a circle and attack these huge internet revenue figures. Yes, a very large proportion is accounted for by search and this is merely “directories on speed”. Hence the argument: “The telephone directories can worry about this, we certainly don’t need to – it’s nothing to do with the markets we’re in!”

In a similar vein, is Google really as awesome as it seems? Delving into its revenues, it transpires that well over 40% comes from small and medium-sized enterprises (SMEs). I have a soft spot for SMEs, but almost none of them is of any interest to even a modestly-sized agency or a national medium.

While these arguments are true, they won’t get you far. The trouble is, not only is the world out there changing radically, the world of yesterday’s advertising is getting smaller. TV advertising, the showcase of the advertising industry, has been static or declining at £3.4bn for five consecutive years, and the same is true for consumer media as a whole.

How can this be? Corporate profitability and gross domestic product growth have been strong throughout this period: weren’t we told at our father’s knee that these were the two key drivers in ad spend growth?

If conventional advertising is not as important any more, ironically communications has never been more important. People in general are phenomenally media savvy. The signs are everywhere: the country is awash with media studies graduates, while there’s a shortage of those with science and engineering degrees; celebrity is an obsession that only comes from media exposure; and there is a global explosion in social networking and so on.

Even if you have doubts about the underlying social values, there is no doubt that this presents exciting opportunities for anyone who is talented, open-minded and energetic in the world of marketing. But just before adland comes out, all guns ablaze, from behind its circle of wagons it needs to accept this exciting new world is changing very quickly. Those aren’t wigwams that the Indians (sorry, native Americans) are retiring to, they’re casinos.

In all this near-chaos, one company stands out as an aggressive pioneer determined to change things – not only working to change things, but with deep enough pockets to give it the firepower to make its ideas a reality: Google.

This $212bn (£103.6bn) company was built into a global business inside five years and for those waiting for the wheels to fall off, please note that profit margins are tremendous (32%) and profits are, if anything, accelerating.

So what can we learn from Google? Google expects all marketing activity to be ROI-based: “Why would we spend anything without expecting a tangible, measurable response?” it says. Since that’s precisely what they offer their customers, this shouldn’t be surprising.

Its marketing budget is released on a quarterly basis. This is tough if you have a longer-term branding issue, but unrepentantly, those at Google regard it as “the way we do things around here”. And with their track record, no one wants to bet against them.

So, speed and accountability are deeply embedded in the culture of this juggernaut. More importantly, this culture stands as a metaphor for the internet in general and has changed the attitude of marketers. They, too, increasingly want it “fast and accountable” and it is no accident that those media seen as slow and unaccountable are, generally, finding life very tough. This is why total advertising spend in conventional media is in decline.

Google is the ultimate child of the internet era – albeit a precocious one. Looking back to the early days, it’s as if it were populated by hippies and hucksters talking unendingly of disintermediation as a concept. Well, they weren’t all wrong.

The middle man is being cut out in some sectors (travel agents and book shops). Google is applying that philosophy quite clinically in the media area. Its attitude is: “Why should I pay commission to media agencies? And if I do, I will decide what I pay it for.” A good question. It’s time someone with real muscle asked it about a practice which lost its relevance 40 years ago.

The threat that question would have posed to the fabric of our industry would have been seismic only a few years ago. Now it is merely a mild tremor compared with the issues the advertising and marketing industry now face.

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