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Is the Valley mindset leaving $60 billion on the table?

I read a very interesting article this week by the deputy editor of Adweek, Chip Bayers. The premise is pretty simple. Silicon Valley has created the monsters of the Internet that include Facebook, Google, and Microsoft. (OK, MSFT is not a true valley company, but is of the same ilk.) The monsters of the Internet are making all of their money from advertising. The trouble is that these monsters are manned by people (or engineers, which we often wonder if they are human, but that’s for another post) who have a pretty serious disdain for advertising. As a result, there is concern about whether the online world will ever be able to serve brand advertisers and their bulging wallets.

Doesn’t seem like much, right? Well, take into consideration these two numbers. Google’s chairman (or whatever his title is these days) Eric Schmidt has predicted that online advertising revenue in the next 10 years will reach $200 billion annually. That’s a big number indeed, especially when you look at the approximately $26 billion sent in 2010.
An even more interesting number is described in the article:

Underneath a veneer of success, the digital media industry as a whole has masked a growing existential crisis. CPMs on the Internet continue to drop like a stone, and most brand advertisers have resisted moving their dollars into digital, to the point that a now infamous $60 billion gap has opened up–the amount of additional money that, given the amount of time consumers spend with the medium, say industry analysts, advertisers should be spending on interactive media today.

The existence of the gap raises an uncomfortable question. How committed to the advertising business can the management at any of these companies be if they’re letting $60 billion in potential revenue fall through the cracks?

Well struck, Chip! The rest of the article is a good read and gives insight as to what is really happening in the Valley these days. There is a serious tension that has come up between the need for scale and efficiency and the requirement that many brand advertisers have but the online space lacks: appropriate context for their brands.

While no one would admit saying this, it seems that the Valley has been trying to get to the same reach and scale that television has. The trouble is that it has done that by chasing the end number only. It’s almost like they have made the mistake that many have made by chasing after the number of Twitter followers rather than the right Twitter followers.

As a result, advertisers are keeping ridiculously large sums of money away from the online space and they may not be turning on the faucet any time soon. I thought this premise sounded ridiculous until I read the following and it become much clearer to me that this is indeed a real problem both now and in the future.

One big reason for the relatively small digital ad spend is that brand managers don’t want their ads caught anywhere near much of the existing online inventory, derived as it is from the direct marketing world of junk mail (the ubiquitous banners, for example). “We’ve got decades and decades of experience that says building my brand drives sales–and all that direct response and discounting does is drive my brand into the toilet,” says one former brand manager.

Yikes. I have to admit that I am not a classic marketer. I have always been on the receiving end of marketing in that I would measure a company’s marketing effectiveness in its ability to help me sell more. I can tell you that it ALWAYS fell short. I had that attitude, though, because I was compensated on selling and didn’t get the nuance of branding. Having this mindset makes me feel very much like these folks from the left coast that think they have built the better mousetrap through technology but they have, for the most part, dehumanized marketing. Looks like I have been wrong.

This sterilization process was spearheaded by the drive for automation, which is one of the best and worst things to happen to modern man. It’s the best in the right context (there we go again) when it provides a repeatable solution for a rote or repetitive need.

Advertising is never rote or repetitive. In fact, it’s so fluid that the idea of automating it is ridiculous.

Tell that to some of the best and brightest in Silicon Valley and they will just look down their noses at you and wonder how you got past the guards. I have some news for you kids of the Internet age. You will someday age out of this whole “I can do everything online” mode of thinking. Why do I say that? Because as much as you seem to hate to admit it, you are human and humans need real interaction. I love the commercial below that points to the absurdity of how we view the online space at times.

Silicon Valley at night

Image by stopherjones via Flickr

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