Is the Internet Better for Advertising or Marketing? The Media Debate
Media: Also, what does it mean to ask the question? Why is it important whether the Internet is an advertising medium or a marketing medium?
Jason Heller, CEO, Mass Transit Interactive: It’s such a tough question, because at the end of the day, who cares more about the answer: the consumer being marketed to or the person doing the marketing? The marketers, as hard as it may be at times, need to sit in the consumer’s seat and look at the importance from the consumer’s perspective of a continuous relationship—in terms of the front-end promotion through the back-end retentional and remarketing communication efforts. So it really depends on what we as marketers decide to use as our own working, day-to-day definitions of marketing and advertising. Because, technically, advertising is just a part of marketing.
And looking at the interactive media, the reasons I think it’s such a great marketing vehicle are a) you can acquire users through that vehicle, which gives it a media feel (and obviously it is media), and b) at the same time, there’s a continuation of communication through email, which is a different part of the same interactive medium. That continuous relationship of acquisition and retention is what makes it more of a marketing vehicle and less of an advertising vehicle per se.
Hespos: You just brought up the difference I was going to raise in this debate, and why I think it’s worth looking at a little more closely. Advertising agencies make money off media placement and all the creative that accompanies that, as well as the strategy that goes into advertising plans. I think the industry needs to take a long, hard look at whether this is more of a marketing or advertising vehicle, to position themselves for the future and figure out how they’re going to make a living off this. How will the content publishers support themselves? Will they always have to support themselves through ads, or are they going to be able to do things like distribution deals, things of that nature? Where do you think it’s going, and where do you think the agencies are going to make their money in the long term? Paul DeBraccio, CEO, Interevco.com: I think the agencies will probably be able to rationalize performance, for better or for worse, or versus TV and magazine. Remember, in the magazine business not too long ago, publishers were very hesitant to accept ads that had 800 numbers in them. They thought, “They’re going to be looking over our shoulders.” After a while they just dealt with it, made a better product, and now 800 numbers and URLs are fairly commonplace in magazine ads.
Going back to your original question, this is a big question. I think it’s a tool that advertisers can use, that it’s part of the advertising function and always will be, but I think marketers could take it a step further. To play devil’s advocate, Jason, you can do that with telephones, too. You have an 800 number, people call in, you gather information about them, including their phone numbers, call them back and even have a good relationship or bad relationship with them. Citibank has a really good telephone relationship with most of its customers. I’ve had phone calls when I was going crazy with my credit card and they called to see if it was me who was actually spending those large amounts of money that weren’t normal for me. So I’m not sure the uniqueness of the Internet is as a marketing vehicle versus as an enhanced advertising vehicle.
Hespos: That’s a good point. Let’s concentrate on the things the online media make it easier to do, like CRM through email and the personalization that goes along with that. How big do you see email marketing (which is clearly distinct from a paid ad placement) getting in the next few years?
Heller: It’s pretty big as it is. In the next couple years there will be some refining. One problem that traditional direct marketers have in migrating to the Net, both from agencies and client side, is that when you’re using email as an acquisition vehicle, and you’re working through a handful of the largest permission-based networks, there’s no merge/purge going on between those networks. A lot of the traditional marketers are fairly turned off by that: They can be purchasing duplicate lists or at least duplicate individuals for the same marketing promotion that comes from one permission-based network or another. A lot of larger direct marketers have been turned off enough by that to not really give the medium its fair play. Other people have had more creative ways of acquiring their names, or have just appended the email names to the databases they have. And they’re already in the more sophisticated email marketing space, where they have heavy user segmentation and customized messaging that’s being optimized and monitored by somebody on a regular basis. You’re going to see more and more of the catalog companies that haven’t migrated to email migrating there over the next couple years. And what I think is amazing about the interactive media, particularly email, is that it forces certain traditional marketers not to become direct marketers or database marketers, but at least to think like them, because now their competition is, through the Internet, closer to their customers than they’ve ever been before. It’s that much more important to maintain those profitable relationships.
DeBraccio: I think that’s a really good point, Jason. I think it’s going to compel the P&Gs of the world to develop closer relationships with customers for better or for worse, because they’re going to be called on it if they aren’t by their distributors. And to your point, Tom, about email: I think email’s going to grow, but as Jason says, it’s got to be refined very quickly or it’s going to be relegated to just another expensive form of DM, which is how junk mail is regarded now.
Hespos: Jason, is your agency seeing an increase in demands for more marketing-related services over online advertising-related services in the past year?
Heller: Oh, yeah. We fall into the category of one of the few interactive-media-focused companies that are still independent, that haven’t been acquired by a holding company or merged with a larger company. As a result, what we’ve witnessed over the last year, as everyone else has, is that the actual media budgets have shrunk to a level that makes it unprofitable for us to run our agency strictly as a media-buying and management firm. Subsequently, what we did was we added an eCRM component, an email management component, to our services. Since then, we’ve seen more revenue come into our agency. I shouldn’t even be saying this; now everyone’s going to do this: We find that we are much more of an asset to our clients when we aren’t just handling the acquisitions side, but helping them realize the potential of this medium through the use of email.
If you start to analyze a small to midsize offline catalog, once you establish a relationship with that customer, it is so much more efficient to communicate with that person via email. These guys can chop 80 percent off their DM recommunication costs, just by using email as a medium. They just need someone to hold their hand and walk them through it, and that’s what we’ve started to do.
Hespos: Paul, I wanted to ask you essentially the same question. You run a company that helps online publishers generate incremental revenue. Where does demand lie on your side of the table? Do you find that clients really want help on the ad-supported models, or are they looking towards deriving revenue from more marketing-related programs?
DeBraccio: A little of both. It’s not an either/or; there’s still a lot of gray area. We have clients who are realizing the value of email products and are using them to help with retention as well, so I guess you could consider that marketing to some degree. But they’re also learning how to monetize those products in more than just CRM activities. One of my clients, Universe, sends out about 11 or 12 million emails a day, and we’re recommending ways we can monetize that and sell advertising on that, or sell special targeted emails that are going out to individuals interested in travel. I haven’t seen anyone who’s gone down the road of either/or.
As this industry matures, I’m sure we’ll see more specialization. But I don’t think it’s going to be an advertising or a DM environment. In the magazine business, 10 to 20 percent of the revenue for most magazines is from list rental, which is obviously a DM function. That 10 to 20 percent generally is the difference between profitability and nonprofitability. The smart publishers are starting to see the value of even list rental to some degree, opted in of course. It’s not going to be that the advertising model is obsolete and DM and all its variations are the way they’ll go. I think publishers that are going to survive are going to have to look at all the revenue opportunities. And that’s what we advise our clients now. You have to look at multiple revenue streams to survive, especially in a down economy.
Hespos: So there is a demand then to generate revenue through channels that aren’t necessarily paid ad placement models?
Heller: And to Paul’s point, on our side, the agency side, we’ve been working with our clients to generate similar kinds of revenue models. Even if they’re a commerce client, we’re directing our clients to establish databases, maintain these relationships with their customers, develop certain levels of original content, and maintain an ongoing communication with their customers. And eventually they can help to subsidize the efforts of that retention marketing by list rental or by additional corporate sponsorship.
It’s just starting to become more of the norm with commerce sites, travel agencies, all these different kinds of businesses that previously didn’t tap into that additional revenue stream of list rental that is a purely DR function. All these guys are doing this now. The larger clients, anyway—obviously, it doesn’t make sense for the smaller client with a list of 10, 20 thousand names to go out and rent their list and annoy their customers. But a client with a couple million names can, in a very conservative fashion, rent that list out at a low frequency, have some additional revenue come in, and not anger their customers.
DeBraccio: You know who does that? The magazine industry. I used to be in magazine sales, and we sold targeted editions to many advertisers. So I think it’s good this industry is starting to realize (I may be blackballed from this industry forever for this statement) that the Internet is not any better or worse than any other medium. It has differentiating characteristics, but it’s got the same limitations and opportunities that radio, television, newspapers, magazines, and outdoor have. And I think the industry as a whole, as we mature we’re finding ways to use it that the traditional brick-and-mortar marketers understand.
Heller: Earlier, Paul, you made a comparison to the telephone, and I agree that the telephone also has that continuation of acquisition versus retention, but to me that brings up another question: If we can make that analogy, does that mean the Internet is similar to the telephone, which I view as more of a tool than a medium?
Hespos: It is a medium, in the sense of a channel of communication. Wouldn’t it depend on how you use it?
DeBraccio: That would be my response too, Jason: it depends on how you use it. The telephone can be business, pleasure, annoyance. That’s why Caller ID became so popular and accepted so quickly, because of the telemarketers and crank calls, if you will. So I think it’s a little of both.
Heller: That’s where I was going. When we look at the Internet, we look at it as a tool, and just like any industry in which at some point certain elements become commodities, we look for different ways to use that tool to achieve our goals. To take a step back, we work in somewhat of a vacuum since we’re an interactive-only agency. We do work hand-in-hand with the internal marketing folks, the agency folks who are handling the offline to really move forward with the more integrated push, but we do work in a vacuum at times. Because the Internet has more of a “pull” feel for information, as opposed to a “push,” which other tools like the telephone would be used for, that also brings a new liLS=Hto how the different media are used and how the vast majority of Americans wouldn’t accept the telephone communication on a regular basis. Because although it’s easy to hang up on somebody and say, “Don’t call me again,” it’s that much easier to hit the “delete” button in your inbox.
DeBraccio: The way the communication is now, I think of it as an improved version of the late-night ”Call now!” infomercial with the 800 number. People are more receptive to it. One thing I want to add, I always say this whether its true or not: It’s not spam if it’s something you’re interested in. That’s where I see targeting as being more and more important.
Hespos: When we pull out of this economic downturn, do you think the folks who are doing online marketing now will be spending more on online paid placements, or on things like CRM and the other things we’ve talked about here today?
DeBraccio: I think it’ll be both. You’ll see the General Motors and the P&Gs of the world begin to spend more online, but that will be part of an ultimate goal to get closer connections with their customers.
Hespos: If it were your company, Paul, where do you think the best investment would lie?
DeBraccio: On the CRM part of it, because you have to build it out, so it requires more of a capital investment. But I wouldn’t ignore paid placements. We used to joke about our potential advertisers, companies that have now gone by the wayside, who would say, “We’ve got the site; now we’ll just wait for traffic since we’ve put our URL in all our TV commercials.” That jump doesn’t necessarily work. So you can’t do one without the other, unless you already have an incredibly large database of customers. Assuming you’re starting at zero and you could either buy lists or place advertising, I don’t think you ought 6„À¢o one without the other.
Heller: I agree. But to clarify, paid placement and CRM have innately different goals. One lies on the acquisition side, albeit there’s some level of retention of your current customers. Also, there’s many different facets of CRM. What we’re maybe talking about here more than anything is the database marketing element of CRM. You have the Siebels and the E.piphanys out there that will sell you a half-million to $2 million product that integrates all your CRM channels and serves up dynamically generated content based on your cookie clusters, and all sorts of bells and whistles. But that isn’t something every marketer necessarily needs. There are scaled-down versions of CRM applications where you’re essentially cutting to the chase of proper database management, customer and prospect segmentation, email delivery, tracking analysis, optimization... I think the size of the organization and what intentions they have to integrate all of their CRM channels are really going to determine how much goes into the CRM spending.
As far as paid ad placements, you’re going to see an increase in that, mainly because a lot of the midlevel marketers have slashed their budgets so extensively due to many operating issues. Even the larger of large advertisers have cut their budgets, and you’re finding that the midsize advertisers are cutting some of their offline budgets as well. I think when those budgets go up, the online budgets for paid advertising will go up. As more case studies come out about different branding elements, the more you’ll find advertisers who are sitting on the sidelines with cash in their pockets jumping in and trying to get in the swing of things. I see a lot of companies sitting on the sidelines right now. Everyone doing business on the Internet right now has put themselves in the position where your customers are closer to your competitors than ever before. Because of that, CRM becomes that much more an essential part of the interactive marketing push.
DeBraccio: I agree with most of what Jason said. I think—though this may sound like vacillation on my part—it depends on the category. Is it really going to be important to have a close relationship with the customer buying, say, laundry detergent, where it’s price-sensitive? Or is it going to be more important to have that relationship with the customer buying something more complex, like a car or a computer? So the budgetary allocations are going to vary by the product category.
Heller: If you’re a consumer packaged goods company, there isn’t the need to create a personal long-term relationship with a customer, particularly if you hold a large percentage of market share in the first place. However, through a fairly inexpensive process of providing some content and some promotional offers, you’re maintaining that relationship, and it’s not as intense a database marketing effort as a retailer that’s selling online and has ten thousand SKUs. In those cases, I don’t think the CRM spending would be in excess of the advertising spending, particularly over a period of time, say twelve months to two years.
DeBraccio: I bet Ford and Firestone would have loved to have very close relationships with customers with what they went through. Hespos: If they had been able to do something online with that first hit, which do you think they would have benefited more from: launching an informational ad campaign, or doing something on the CRM side, if they had the names and email addresses of all their customers?
DeBraccio: CRM, without a doubt.
Heller: Their goal was addressing the perception of everybody, not just their current customers. But for their current customers, CRM would have been a rifle shot, as opposed to a shotgun, approach.