Let’s have a closer look at the value chain of advertising. On top sits the advertiser who spends money to reach people that need to be influenced or persuaded. The only thing the advertiser knows for sure is that half the money he spends is wasted. Which half is of course the question. So advertisers need reassurance. That’s why they all like to measure. They love data, ratings and models.
Most of the advertising industry is about advertising. Advertisers love to use mass media to transport and transmit their messages. The medium still is the message, one might argue. Mass media advertising techniques are labeled as Above The Line (ATL). Roughly said everyting else is BTL: Below The Line. Below The Line is growing in importance and in budgets. Why? Advertisers can measure spending and results. They experience the feeling of control. Control of the effectiveness of their actions. In rough times when budgets are tight and spending money is down, one turns to measurable actions.
While budgets at the top of the food chain are shrinking, advertisers still need to hire Above and Below The Line agencies and talents. Some of these agencies do everything, especially a few worldwide operating conglomerates. Advertisers hire these agencies because they employ the creative talents who can come up with creative ideas and these agencies know how to buy media.
Buying media to place ads used to be very profitable. The 15% commission for buying media has in fact been the only business model of this entire agency based industry. The agency gets the percentage and in turn produces the insights, ideas, artwork and other materials needed. Everybody happy.
Some advertisers however wanted a piece of the action. Why not buy media yourself or through a niche agency willing do it for less? So these days lot of media budgets are handled by media buying agencies. And they make their living by, exactly, buying mass media. In this crisis something else happened as well. The companies that own and exploit all types of different media are selling directly. Advertising is not bought anymore, it is sold.
So marketing budgets are down. And therefore advertising budgets are slashed. More money moves to BTL, which can be controlled by advertisers themselves. Less and less moves from the upper level to the second line. This link of the value chain is under pressure because commissions are squeezed and new forms of competition drove prices down even faster.
The more new media, the more new media producing companies. The more hype and competition, the more fragmentation. The more fragmentation, the higher the need for models, data, ratings, reports. Advertisers need control to know which half of their budgets is wasted, remember!
This is a classic example of a value chain in distress. And as always the disrupted business needed a solution from an outsider looking in. And as always it came.
If advertisers basicly want to measure, they want to control. If someone offers the idea of 100% control, advertisers will turn to them. The rest is history. They are also known as GOOG.