Tuesday, December 19, 2023

NEW INC. MAGAZINE COLUMN BY HOWARD TULLMAN

 

Why Tech Isn't Improving Your Advertising

The algorithm may have taken over the ad buying, but there's still no telling exactly who is watching your messaging.

 

BY HOWARD TULLMAN, GENERAL MANAGING PARTNER, G2T3V AND CHICAGO HIGH TECH INVESTORS@HOWARDTULLMAN1

 

Every entrepreneur will tell you that they absolutely hate to spend any of their scarce cash on advertising, for two main reasons. First, they're not sure that ads work-- there's a lot of "spray and pray" going on and not much in the way of credible measurement or tangible results. Second, they believe that their product or service is so great that people should simply be flocking to their doors to buy whatever they're selling. They think that, if you use your money to create exceptional products and services, you won't need to spend on advertising.

If only life were that fair or entrepreneurs were a little more realistic. For some businesses, advertising is the cost of being boring.  For others, it's an attempt to put lipstick on a pig. But at the end of the day, there's really not much choice. It's like dancing with a bear - you don't get to stop when you want to.

This antipathy is hardly an attitude limited to new business builders. The advertising industry has always known that, while everyone wants to make money, no one really wants to buy advertising. On its best day, advertising is a necessary evil and - much like cable television or insurance - always a grudge buy. Even worse, the advent of new technologies, which in other industries have dramatically improved transparency, productivity, and accountability, have only added more confusion, uncertainty, and imprecision to the ad game.

Advertising follows audiences, but with programmatic algorithms dictating the placement, frequency, and duration of digital ads, no one knows much of what's happening in the field. Claims about the effective addressability of digital ads are mostly optimistic fantasies clothed in the belief that the underlying tech will somehow get the job done. As John Wanamaker said long ago: "Half the money I spend on advertising is wasted; the trouble is, I don't know which half." Some things never change.

While some new companies like Dumbstruck can help advertisers determine whether the content of their ads is going to be effective, it's still anybody's guess as to whether you're getting your ads in front of the right buying audience at the right time and place. Context, given the abundant noise and clutter, is just as important as content, if not more so. Smart reach is still the name of the game and, as the migration from linear TV to digital video accelerates, determining whether ads are reaching the right folks, resonating with them, and driving purchase behavior is becoming increasingly difficult.  Average daily TV time is down from 3.5 hours a day in 2020 to less than 3 hours a day in 2023 while daily digital video viewing has grown by almost that exact amount from 2.5 hours a day to almost 3 hours a day in 2023.

As a result, linear TV ad spending has been flat to down over the last four years (stuck in the mid-$60 billions) and, even in an election year, there's not much enthusiasm for 2024. But, at least in the old days of traditional TV, you could sometimes see your ads running on the tube, while these days no one has any idea where their digital placements are showing up, what they're adjacent to, and who's seeing them. X (formerly Twitter and soon to be toast) is the most visible poster child for the risks of having no control and no say over what some algo decides to position next to your offerings. But the whole industry is now driven in large part by fraudulent next-gen click bait systems designed to attract programmatic ads.  These MFA programs have led to an environment where one in five links is to a fake site delivering made-up facts, phony health products, or pathetic financial pitches.  

That's no problem if you're targeting kids up to age 18, because since  TikTok and YouTube completely own the video market, the choices are pretty much locked in,  and frankly the advertisers focusing on these kids don't really care about quality engagement or first-party data. It's all about tonnage. TikTok's ad business is growing about twice as fast as Meta's and almost 4x faster - year over year - than Alphabet's. And because of TikTok's delivery methodology and typical video duration,  cost-per-view to advertisers is a fraction of what they have been paying for decades in more traditional channels.

But for mature and serious businesses seeking to actually connect to real human beings who are interested in learning about and ultimately purchasing their products and services, the problem is much more complex and challenging. TikTok isn't going to get the job done, but new ancillary networks are being built which make much more sense for serious advertisers. The most attractive of these are the retail media networks being developed by merchants like Walgreens, Kroger-Albertsons, and Walmart. They have extensive first-party data about their customers, strong and recurrent connections to them, and relatively high-quality engagement. But they lack the massive scale of players like Netflix. However, in combination, they can provide a solution which also offers levels of addressability, measurement and accountability that the digital vendors can't yet duplicate or effectively compete with.

The bottom line is pretty simple. As attractive and rapid as the newest delivery and tracking ad technologies may seem, as the ad buyer you're being asked to put far too much trust and money in "take my word for it" systems where the results are machine-driven and fundamentally unmeasurable. A much better bet is to take a step back and use channels and vendors whose methodology and mechanics are clear, understandable and auditable in more concrete and convincing ways.