Following an earlier downward revision of his outlook for the major agency holding companies due, in part, to the effects of Hurricane Sandy, an influential Wall Street analyst this morning said the “superstorm” has also impacted the performance of some big, free-standing digital agencies, including SapientNitro and LBi. “Sapient indicated last week that its agency SapientNitro would lose $1 million to $2 million (0.5% to 1.0% of fourth quarter 2012 revenue) given disruptions for the company's 700 New York-area employees,” writes Pivotal Research Group’s Brian Wieser in an equity research note sent to investors this morning. “Even the Amsterdam-based LBI indicated last week that it is "assuming a degree of disruption (due to) storm damage in New York. In general clients are behaving tentatively and visibility has deteriorated slightly relative to typical levels... power cuts driven by storm damage in the New York area could negatively impact the number of billable days in November." Those reverberating effects, Wieser added, are causing Pivotal to rethink its overall estimates for the ad industry for the fourth quarter. “We already assumed modest deceleration (close to 0.5% for each company), but such rates of decline may be optimistic if our negative view for media owners in fourth quarter 2012 plays out.” One “sign of optimism,” Wieser continued, “may be found in Publicis' statement over the weekend that organic revenue growth rebounded to grow in October by 7%. Still, even Publicis indicated that it may be too early to tell if this rebound reflects something more lasting.” Clarification: The term "downgrade" in the headline of this story refers to Pivotal's Brian Wieser's report downgrading the earnings outlook of the agencies, not their stock values.
Marketers looking to maximize the power of mobile should be aiming far beyond the click. The core constituency for device-based marketing, the 18- to-34-year-old segment recently dubbed “Generation C,” is all about sharing the deals and offers they like best. According to a new survey of this segment from ad platform RadiumOne, 50% of the young adults in its recent survey share sale offers with friends via their mobile devices. “We like to share things,” says RadiumOne VP of Mobile and Display Kamal Kaur. Among the Gen-C mobile users, they found that 54% said they use social networking apps most frequently on their phones, even more so than gaming and entertainment apps (34%), utilities (28%) and shopping apps (10%). The survey finds that 77% of Gen-C users consider personal recommendations and sales and offers as the major influencers on their purchases. Thirty-one percent of these mobile shoppers are sharing coupons, sales and ads with friends one to three times a month, with 16% sharing three to six times a month and 3% sharing even more than six times a month. Kaur says that marketers have to keep the mobile sharing effect in mind when building campaigns. “The messaging needs to be crafted and it needs to allow for sharing of the ad or the coupon.” In fact, because shoppers are often using their devices as one step in a multi-screen process that is fulfilled later, the mobile component needs to accommodate this emerging purchase path. “Mobile is a very one-person tool, owned by one person,” she says. “Being able to share a coupon or offer or to remind yourself on another screen is key." But when they do go into the store and crack open the phones, young users are aggressively leveraging their phones to get the job done, adds Kaur. “This age group is very much into comparison shopping. They like standing in front of products [in-store]. They will check reviews and cross-search. In-store, if they find a better deal they will walk out,” she says. Among young adults about half are already using their devices for comparison shopping on a weekly basis. More than half (54%) have already used their device to make a purchase in the past six months. Indeed, of mobile purchasers 32% made one to three buys, 14% made three to six buys and 9% have made more than six purchases in the last six months on their phones. With well-optimized experiences, Gen-C is very eager to engage with marketing messages, the RadiumOne survey found. Almost half (47%) of respondents said they had clicked on a mobile ad in the last three months.
Omnicom's search group began using Autonomy's Optimost Campaign platform earlier this month to manage parent company Hewlett-Packard's search engine marketing efforts, Andrew Joiner, general manager for emerging technology and marketing at Autonomy, told MediaPost. The two companies have been working partners for years. In February 2009, Omnicom signed a deal to support HP's marketing services business, estimated at $1 billion during that time. Now Omnicom's search division, Resolution Media, will support HP's SEM campaign with Autonomy's Optimost platform. Joiner wants the agency to use Autonomy for all Omnicom search marketing clients, which spans 40 markets, generating about $1 billion globally. He said preliminary tests between the two companies, as well as case studies with other brands, already prove the technology improves cost per clicks and conversion rates. An Omnicom spokesperson said the holding company declined to comment. Pilot tests show returns rising with support from the platform's bid management system running across social sites and big search engines. It also automates search engine optimization to analyze Web pages, improve page rank and increase organic traffic. A case study with Braun Corp. earlier this year documented improved SEM returns, based on Autonomy's search platform. The campaign generated a 42% increase in conversions, 64% decrease in year-over-year cost-per-acquisition, and 17% decrease in year-over-year cost-per-click. Other Autonomy customers include Avis, Discover Financial, Hilton Hotels, Macy's and Target. HP's Software business includes two units: Autonomy and the legacy HP software business. Autonomy, which HP acquired in October 2011, focuses on supporting a product suite, rather than marketing services. Rivals IBM and Adobe support clients through software and Web-based products, but also a full suite of services. For the three months ending July 31, net revenue from services, support and licenses rose by 65%, 16% and 2%, respectively. For the nine months ended July 31, net revenue from services, support and licenses increased by 81%, 18% and 7%, respectively. The net revenue rose primarily from acquired companies, such as Autonomy, according to the company's Form 10-Q U.S. Securities and Exchange Commission July 2012 filing.
Epsilon parent Alliance Data Systems on Friday said it has agreed to buy digital marketing services agency Hyper Marketing for $460 million. Through its various units -- including Ryan Partnership, CatapultRPM, SolutionSet and Getmembers.com -- Hyper Marketing provides various digital services, from Web site design and social media integration to mobile strategy and customer relationship marketing. Owned by private equity firm Lake Capital, Hyper Marketing clients include Unilever, The Home Depot, Kellogg and Mars. “We’re each a highly client-centric culture,” said Zain Raj, CEO of HMI. Per the deal -- which is expected to close by year's end -- Alliance Data Systems plans to combine Hyper Marketing with its Epsilon direct-to-consumer marketing business. For Epsilon, Hyper Marketing is expected to add scale and digital capabilities to existing verticals, including consumer product goods, telecom, retail and financial services, as well as new verticals, such as energy, fitness, quick service restaurants, and technology. In the words of Bryan Kennedy, president of Epsilon, Hyper Factory will provide “critical mass across the entire digital asset spectrum.” Alliance Data Systems expects Hyper Marketing to generate about $300 million in revenue in 2013, strengthening the company's annual earnings. With Hyper Marketing, Alliance is predicting that Epsilon’s 2013 revenue will reach $1.3 billion. Epsilon firmly rooted itself in permission-based email marketing with the acquisition of Bigfoot Interactive for $120 million in 2005. In early 2006, Epsilon acquired DoubleClick's email business for an estimated $90 million. Later that year, it acquired Abacus, which manages databases for catalog companies, from DoubleClick for $435 million.
Groupon is doing more business than ever in mobile, but slowing revenue growth overall in the third quarter pushed the company’s stock well below $3 a share Friday. Groupon’s stock has fallen a whopping 86% from its IPO price of $20 a year ago on increasing investor concern about its core business model, widespread competition and daily deal fatigue among consumers. In missing both analyst estimates and its own revenue guidance in the third quarter, the company pointed to a sharp slowdown in international sales, where growth fell to 3.1% from 31% in the second quarter. "Our solid performance in North America was offset by continued challenges in Europe," noted Groupon CEO Andrew Mason, in the earnings release today. Groupon reported revenue of $568.6 million in the last quarter -- up 32% from a year ago, but short of its own projected range of $580 million to $620 million. It posted a net loss of nearly $3 million compared to a net loss of $54.3 million a year ago. To help bolster sales and diversify its main deals business, Groupon has increasingly turned to mobile initiatives. In October, about one-third of transactions in North America were completed on mobile devices, an increase of 30% from a year ago. Earlier this year, Mason said Group mobile users spend about twice as much as its desktop shoppers. During the third quarter, the company also rolled out its own mobile payments platform to compete with Square, PayPal Here and GoPago. Groupon Payments allows participating merchants to accept credit card payments using a small attachment that connects to an iOS device audio port. It charges a fee of 1.8% plus 15 cents per swiped transaction compared to PayPal’s 2.7% and Square’s 2.75% (or $275 flat monthly rate). “We expect the company to increasingly integrate its payments, scheduling and rewards tools for merchants in order to drive higher merchant retention for its daily deals business while also closing the loop with users,” wrote JPMorgan analyst Doug Anmuth in a recent research note. In the quarter, Groupon also introduced Breadcrumb, an iPad-based point of sale system for bars, restaurants and cafes in the U.S. The service, which includes an iPad, mobile app, printer, router and wireless service, works with the company’s new payments system. From a user standpoint, Groupon’s iOS and Android apps have earned high marks. In the App Store, the its app has a rating of four out of five stars (all versions), while in the Google Playstore, it has four and a half out of five stars. The company rolled out new versions of both apps in late August aimed at making it easier to find current deals and see larger images of offers.
U.S. advertising spending still hasn’t returned to the levels it attained in the frothy credit bubble economy during the middle of the last decade, and probably won’t for several more years, according to forecasts from four different research and analysis outfits. While their numbers vary somewhat, due to the inclusion or exclusion of certain channels, like direct marketing, the figures from Kantar, ZenithOptimedia, Nielsen and GroupM note that ad spending followed the economy over a cliff from 2007-2009. Its recovery from 2010-2012 has been just as lackluster. According to Kantar, total U.S. ad spending plunged from $158.2 billion in 2007 to $142.9 billion in 2008 and a low of $125.3 billion in 2009, for consecutive annual declines of 9.7% and 12.3%, respectively. As the economy bottomed out and slowly began to recover, ad spending edged up 4.6% to $131.1 billion in 2010, then jumped 9.8% to $144 billion in 2011. But the rate of growth slowed considerably in the last year. Kantar is currently forecasting 2.2% growth to around $147 billion in 2012 -- still 7% short of its 2007 level. ZenithOptimedia pegs total U.S. ad spending at $177.6 billion in 2007, $172.5 billion in 2008, $157 billion in 2009, and $151.7 billion in 2010 (which puts the low point a year later than Kantar), for consecutive annual declines of 2.9%, 9%, and 3.4% over this period. In 2011 ad spending increased 1.6% to $154.2 billion, according to ZO, followed by a forecast 4.3% increase to $161 billion in 2012 -- 9.3% below 2007. Nielsen’s figures for total U.S. ad spending follow a similar arc, from $140.5 billion in 2007 to $136.8 billion in 2008 and $117 billion in 2009, for consecutive annual declines of 2.4% and 14.5%. Ad spending edged up 5.6% to $123.6 billion in 2010, then eked out 2% growth to $126.1 billion in 2011. If Nielsen’s figures for the first three quarters of 2012 are good indicators, 2012 might see growth of up to 4%, for a total $131 billion; that’s 6.8% below 2007. Finally, GroupM had ad spending basically flat from 2007-2008, slipping around 0.4% from $162.6 billion to $161.9 billion, before plummeting 13% to $141 billion in 2009. And again, recovery has been painfully slow, with a 1.1% increase to $142.5 billion in 2010, followed by a 3.3% increase to $147.2 billion in 2011 and a forecast 3.6% increase to $152.5 billion in 2012 -- still down 6.2% from 2007. Nor will U.S. ad spending return to its previous heights in the new year, according to GroupM, which forecasts a roughly 3% increase to $157.2 billion in 2013.
The prosecution rests. For some years now, I have been arguing that advertising is losing its primacy in marketing. This is for a host of reasons, almost all of them arising from digital revolution. In dozens of articles, in hundreds of speaking dates around the world, in a previous book and now in a forthcoming one, I have explored the loss of reach, the loss of attention and above all the loss of trust converging to undermine paid messaging. It should now be blindingly obvious to every marketer, and to more evolved bipeds, that nothing that comes out of the mouth of a brand or any other institution has remotely the influence of what comes from the mouths of 7 billion bystanders freely trading opinions online. It now matters very little what you have to say about yourself via slogan, bombastic 30-second spot or pathetically unviral “viral” video. What matters is what the public has to say about you -- based on who the public believes you really are. Which, once again, does not flow from your positioning or your strategy or your tagline. It flows from the brand self you project by all you do, and don’t do, in the actual world. Or put another way, if people don’t like you, they are no longer eager to do business with you. And in a socially mediated world, not to mention a world of enforced transparency wherein your every move is searchable on Google in perpetuity, you can no longer advertise your way into their wallets, much less their hearts. As I say, the evidence for these assertions will be cited chapter and verse this spring when Can’t Buy Me Like finally materializes. But -- know what? -- no need to wait. We have just experienced the mother of all case histories. It came a week ago, and you probably noticed, because it was in all the papers. The presidential election was an electoral drubbing for the Romney campaign, a repudiation for the Republican Party, a humiliation for Karl Rove and his American Crossroads superPACS and a lethal blow to the notion of advertising persuasion. For the past nine months, advertising has intruded, advertising has thundered, advertising has invented, advertising has lied, advertising has smeared, advertising has pleaded, advertising has metastasized. There is no evidence, based on Tuesday results, however, that it influenced a blessed thing. Persuade? Yes, particularly in the so-called battleground states such as Ohio, Virginia, Florida and Colorado, it persuaded people to tune out advertising. Not a hard deal to close, that. Let's look at the impact of the $408 million of superPAC money spent on behalf of Gov. Romney and other Republican candidates, according to the final tabulations of the Sunlight Foundation. Remember how the idiotic Citizens United ruling by the Supreme Court (the one that called political spending protected speech) was going to place our fate in the hands of corporations and other special interests? Well, not so far. They foolishly spent the money on attack ads. The Romney-affiliated Restore Our Future Inc. alone spent $143 million. Rove’s American Crossroads, $105 million. (Meanwhile, superPACS affiliated with the Democrats, chiefly Priorities USA Action, spent a combined $196 million.) Rove’s superPACS poured cash not only into the failed Romney candidacy but eight Senate races. Six out of eight of those seats went to Democrats. In all, the Dems gained a net two Senate seats and most likely seven in the House. Crossroads, indeed. The real crossroads here was the demographic reality of 2012 America. The GOP tried to talk to young voters, women, African-Americans (in one unintentionally hilarious spot, we were reminded that Lincoln was the Republican who ended slavery) and especially Latinos. But those messages didn’t resonate, because the Republican candidates’ body language -- including their political histories and astonishing gaffes (“legitimate rape”) -- belied the claims. It’s hard to persuade Ohio autoworkers that you are a jobs creator when you agitated to bankrupt Detroit. And it’s impossible to reach out to Latinos when you first ask them to provide their documents. We are now and forevermore in the Relationship Era. What the GOP proved, and what all marketers must at long last internalize, is that you can’t advertise yourself out of a bad relationship.
The health of premium web advertising has been permanently damaged in recent years. It's not dead yet, but the trend seems irreversible. The effects on the industry have been and will remain significant, with perpetually limited prospects for revenue growth and profitability at the core ad-supported properties managed by publishers such as Yahoo and AOL. Threats will remain continually pronounced for most entities which generate news or otherwise develop content which is expensive to produce and which is wholly dependent upon advertising. Google has positioned itself as the primary catalyst for the continuation of this trend, and also as the primary beneficiary of the resulting changes to the economics of the industry. Advertising alongside premium inventory remains an important tactic for marketers(because of the perceived value of content adjacencies, the efficiencies associated with wide reaching advertising units, the relative-certainty of delivery of such inventory and because many premium publishers possess valuable first-party consumer data), but premium's share of total online advertising revenue is nonetheless falling. Secular weakness seems self-evident to us based on the underlying organic growth trends from the owners of these properties in recent years as well as in IAB data for the industry as a whole. These trends will become more clearly evident as industry profits continue to shift from the owners of content and towards the aggregators of advertising inventory, including Google and the other ad tech players which facilitate these trends. But premium display advertising has faced a secular shift of preferences by advertisers. Advertisers have oriented themselves away from inventory adjacent to specified, premium content and towards inventory with data-driven attributes, often based around consumer actions or audience-based profiles instead. The use of ad networks and exchanges pair with the application of third-party data and information associated with cookies and make it possible to favor spending on "audiences" instead of content as they would in traditional media, regardless of what content those audiences are consuming on the web. The lower CPMs which result for these audiences on what would otherwise have been remnant inventory make it possible for advertisers to truly do more with less. We argue that most advertisers' budgets don't change as a result of lower pricing, as we believe they are instead reallocated. With such a credible alternative to premium display, pricing is held in check as buyers continually have the advantage in their negotiations with the premium display owners. Advertisers are put further ahead in their negotiations for web inventory because advertisers typically have better information to inform the prices at which they are willing to buy vs. the information publishers have to inform the prices at which they are willing to sell. In traditional media, neither side truly knows the outcomes associated with media buys and only the seller knows the demand for specific units of inventory. At least the seller knows all of the demand for specific inventory, and this proves to be a critical advantage. On the web, because of third party ad serving, only the advertiser and agency know what happened with a campaign most of the time (at least if the consumer viewing an ad leaves the publisher's site and goes to one controlled by the marketer) after a consumer clicks on an ad. Because of these preferences, the most important aspect of digital advertising becomes the ability to efficiently create scalable outcomes across the web. Those entities which satisfy marketer goals across the broadest audiences, defined as best as the marketers want them to be defined (i.e. by applying more data to the determination of which audiences to buy), can thus become the most important among the aggregators. Those entities which can aggregate audiences and reduce overall transaction costs (which could otherwise be substantial given all of the processes involved in accomplishing marketers' desired outcomes) are even better positioned. Essentially, the players which do these things will capture profits from the industry that would otherwise accrue to publishers. This primarily means Google has been emerging as the display industry's biggest winner and we expect it will continue to do so. With the largest exchange (AdX, formerly the Doubleclick Exchange), the Google Display Network, a DSP (formerly Invite Media) and an SSP (the former AdMeld) paired with more data than virtually any other industry participant, it's difficult for us to imagine otherwise. Yesterday's earnings results from Google confirmed to us as much. Service providers who help to manage any aspect of the technology required to execute campaigns - including advertising agencies - also continue to benefit. Given all of this, what are conventional web publishers to do? Practical options are limited. The best option for any one publisher seeking to maintain its advertiser base is to find ways to become a "one-stop-shop" by making it possible to reach virtually everyone as often as a marketer desires. Other than Facebook there are few publishers who can do this for marketers seeking broad audiences. More narrowly targeted publishers may be able to do the same if they are the go-to owner of media in a particular vertical (thus the Wall Street Journal, which recently announced it would be launching a private exchange powered by Rubicon Project, provides an example of one publisher which may be able to overcome the aforementioned negative trends for publishers). Consolidation among publishers or other tie-ups of inventory to create more "one-stop-shops" should be another avenue, and we would see significant benefits from AOL, Yahoo and MSN working as closely as possible together. Otherwise, the only opportunities for growth we see are for a publisher to grow their traffic significantly or otherwise make significant product enhancements that allow the publisher to go after an increasing share of marketer budgets. Yet another approach we expect to continue is an increased reliance on consumer fees via paywalls. If all of this seems bleak, we always try to remember that creative destruction seems to produce favorable results in the end. The Encylopedia business was initially hurt by Microsoft's EnCarta, and subsequently both were crushed by Wikipedia. We certainly prefer Wikipedia for our information-seeking endeavors, despite the fact that most of that enterprise depends on the work of volunteers and donations. While there is much high quality content across the web that is produced by amateurs today, it seems inevitable that UGC will only continue to grow in prominence in years ahead given the limits to support for higher-end professionally produced content. Conveniently, Google already dominates UGC via YouTube of course (not to mention Blogger), and will inevitably be best positioned to continue capturing the bulk of the economics of that business in the future as well. As long as advertisers exhibit increasing indifferent towards the content around which their creative messaging sits, more and more UGC will eventually become supported by advertising from large brands, too. However, we should all be hopeful that the future of news and entertainment will at least feature more than a consumer reading the Wall Street Journal aloud while preparing to ride a skateboard with a cat. Brian Wieser is senior research analyst of Pivotal Research Group. This column was reprinted with permission from the author.