Advertising – from art to science?

3 Jan 2011

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Credited with coining the term viral marketing, former Harvard professor Jeffrey Rayport says the future of advertising will centre on the use of real-time analytics and marketing to the individual, not the masses.

Life can sometimes be a series of strange coincidences.

For example, it is not often that you get to meet two people alleged to have coined the term “viral marketing” in the same year. Last November, one of America’s most successful venture capitalists, Tim Draper – the astute investor who funded Hotmail and Skype and who claims to have invented viral marketing when helping market Hotmail – was in Dublin and granted an interview.

And last month, another visitor to Dublin was Jeffrey Rayport, the esteemed Harvard professor who wrote an article for FastCompany in December 1996 entitled ‘The Virus of Marketing’, where he described a virus as the ultimate marketing programme.

Rayport, who was in Dublin to speak at the 20th anniversary of Fleishman-Hillard in Ireland (he is on the advisory board of Fleishman-Hillard), laughs at the coincidence. “He (Draper) was very upset about that. He sent me an email saying he couldn’t understand why I couldn’t call the people from Wikipedia to tell them to stop crediting me with the invention of viral marketing because he invented it.

“What surprised me was here was this guy who invested in all these successful digital media companies and he believed you could just call up Wikipedia and tell them not to publish something. That’s not how this medium works.

“All I know is that article was the hardest thing I ever tried to get published, it took me over a year to get it published. In the mid-Nineties anything that had ‘viral’ in it sounded like HIV and nobody wanted to have anything to do with a viral contagion.”

Rayport, a genial gentleman who takes a polite interest in nearly everything, is speaking to me in the seats of the new Aviva Stadium. We have the entire place to ourselves for our interview.

Regardless of whether he invented viral marketing or not, the week I meet Rayport is the very week that a storm of controversy emerged on Facebook after a woman pushed a cat into a bin in the UK. Rayport isn’t surprised at how that went viral.

“We live in this world where anything you do today is viral. A journalist writes a story to be shared. Viral is the discipline of our times.”

Rayport’s first job was as a journalist for Fortune magazine. “I found it incredibly inspiring to be part of Time Life, but I also had a deep abiding interest in computers and programming and I was looking at magazines on shop shelves and decided that sooner or later we’d be sending that magazine over a wire.”

New technologies

In the mid-Nineties, he saw a major shift emerging – how the world of media and content would intersect with the world of technology and networks.

“This was fascinating because what we were working on at Harvard Business School was e-commerce before there was a web. For decades economists had said we’d seen huge productivity gains from application of technology to agriculture, to manufacturing and assembly. But the conventional wisdom in the economics community was that we would never see that level of magnitude of productivity gains in the services sector for the simple reason of human factor dependency – such as the person who welcomes you in a restaurant or hotel.”

This, he says, all began to change with the introduction of technologies like interactive voice response (IVR) and its uptake by credit card issuers and home shopping networks. “Suddenly you had people running call centre businesses, generating extremely attractive profit margins because they were building their business out of information flows and the less they touched in the physical world the better.”

Rayport also realised that the dynamics of business were due an overhaul. “Part of it was teaching at Harvard Business School. We had these traditional marketing courses, teaching 45 case studies in a row and every single one of them was about an auto maker, a branded package product, and all these standard categories from our industrial manufacturing past.

“But even in the 1990s, 85pc of GDP output in the US was from the services sector. The question was not only what happens when content media meets technology networks, but what happens when services meet technology networks and especially what happens when technology is actually smart enough that it can not only serve a customer effectively, but elicit emotional responses from customers?

“That for me is the big headline for where we’re going. You could talk about media and content all day long – it’s my first love – but the bigger story in our economy is the redesign of what most of us do for a living, which is essentially services for other people.”

Rayport says Ireland is a great example. We have lots of hi-tech firms and what many people do in these firms is either write code that automates financial services over the web or mobile devices or they sit in call centres supported by technology to deal with information, a lot of that by IVR.

“Five or 10 years ago nobody ever thought you could fall in love with an inanimate object but the Sony AIBO dog taught us different,” he continues. “Now you talk about devices like iPad and iPhone that people can’t live without and they fall in love with, because they are part of how they express themselves and connect with the people they care about. We’re seeing what they used to call in MIT Media Lab a way of ‘affective computing’ – computing that can generate emotional or affective response entering the mainframe. I think that’s going to be the big story of our lifetimes.”

Media in trouble

“Media is one of those fascinating two-sided markets with advertisers who pay some of the bills and subscribers who pay some of the bills,” says Rayport. “For all of the arguments certainly in the US and around the world, telecoms companies and media houses are grappling mightily with the issue of network neutrality. Some sites that have the big bucks like Google or YouTube could pay for privileged access to bandwidth. YouTube would then deliver a better service than Hulu and win the market by brute force. A lot of people think network neutrality is an important principle for the world wide web.

“But that said, what is missing from the discussion is the simple fact that there is nothing neutral about the network when it moves to mobile devices.” Someone, he points out, will still have to pay and therefore somebody is laughing all the way to the bank every time content is downloaded. The solution, Rayport optimistically believes, lies in devices like the iPad and smartphones.

“Somebody is being paid for the distribution and when that content is distributed it is going to be rich media content. Now when we’re talking about streaming video, high-resolution pages of high-end glossy magazines, plus photography, plus video, plus motion, now you’re talking about stuff where there has to be value shared, it is inevitable.

“In point of fact when you look at the way premium SMS services work on mobiles today, premium SMS is generating a huge amount of money for content creators. Even as that market matures, the irony also is that when you think about a ringtone made out of a 20 or 30-second cut from a music single, it is actually much less expensive to buy the single than the ringtone. To buy the ringtone it is €3.99 or €4.99; it is a hell of a margin, but you pay more for less.”

In essence, Rayport thinks mobility is actually going to bring back a world in which paid content has life. “The other part is to go back to the advertising side, which is going to be more sophisticated in terms of everything from marketing mix optimisation to analytics.

“Frankly, I think we are taking marketing from a world that was dominated by art to a world which is much more about science, meaning we are not going to have people making judgements about running a national 30-second spot for the Super Bowl, but actually trying to figure out household by household that are digitally addressable by dish, DSL or cable. You are now talking about an advertising efficacy that advertising didn’t have before.

“The big critique of advertising wasn’t that it didn’t work, but the old joke traceable back to the department store magnate John Wannamaker who said ‘50pc of my advertising money in dollars are wasted, I just don’t know which half’.

“We’re now going to figure out what works. The digital world is famously accountable and when you move into a world where you calculate a return on investment for ad spend, it actually is an investment because there is a return.”

Let the market decide

From Rayport’s perspective the world is moving at an accelerated pace. Even for Intel engineers who cling faithfully to Moore’s Law that computing power doubles every 18 months, the reality is that culturally technology is bringing about changes three times faster than that.

“Trying to imagine the world five years from now is impossible. If you are a marketer or an editor or a media person you are asking what’s here to stay, what are the new realities? There are four basic impacts which you know will change the world irrevocably.

“One is human beings for time immemorial have always needed to find information in order to survive – there’s got to be communications. You could argue that the page rank algorithm which explains Sergey (Brin) and Larry’s (Page) wealth has forever changed the way most of us find things out. The fact that Google has 70pc market share in search queries makes it a uniquely dominant company in a fundamental area of human activity.

“I would argue that the second area of this is how we store and remember. I can’t store all the phone numbers but my iPhone does, and carries my vacation images. I do think that we as human beings are distributing our memory across the silicon substrate in our devices – that’s impact number two.

“The third impact is that human beings have always been a social species, that connection is what human life is all about. Social networking has forever changed how human beings connect. Facebook has half a billion users, you look at even a diminished MySpace with 150m active users, go around the world to Mixi in Japan, Bebo in Europe, Orkit in Brazil. We are probably somewhere around 1.5 billion human beings active on social networks, roughly  20pc of the world’s population.

“Yes, we still relate to each other on the street and office but that’s been forever changed through digital overlay. The final impact is how we connect meaningfully is changing the stuff we care about.”

Rayport says the idea of social networks becoming the new broadcast networks and channels of distribution is compelling: people with a lot of connections online are valuable to brands because they influence a lot of people. “This is what inspired me to write that viral marketing article. The Social Graph Facebook talks about, our social connections are now becoming channels for content distribution – that again is an impressive impact when you talk about hundreds of millions and billions of human beings.

“That, by the way, presents a happy footnote from an advertising perspective. It means there are new channels of distribution, some are more valuable than others. And boy if your media brand can be one of those mega nodes, then all of a sudden advertising becomes powerful again.”

‘Like’ this

“If I just threw an ad up on Facebook with the idea that its art would attract clicks, that would be dumb in this new world,” explains Rayport. “But if I did something non-obtrusive, clever and authentic because I have a brand, that’s very powerful.”

He sweeps his hand around the empty Aviva Stadium. “If I was a Foursquare user and came here often enough I could be the mayor of Aviva Stadium. For brands and content creators that’s a lure. Geotagging of consumers is fascinating because physical retailers can engage.

“In the past you would have expected a 20pc discount when Starbucks is empty but you as an individual may derive a 20pc premium when the Starbucks is crammed full. You, because you are the influencer, you are the mega node, but why would I offer your 5,000 followers on Twitter a 5pc discount? I want you because you bring a lot of people who represent premium traffic.”

Rayport says the monster that is mass media in the US is falling over itself to understand niche media, or marketing to the individual based on analytics and accuracy. “One of the areas where there is a huge amount of venture capital spent in the US is in the ecosystem for serving ad messages online, supply platforms, ad exchanges – it just goes on and on.

“Google bought DoubleClick and released an upgraded version of DoubleClick Ad Exchange; what does it do – two things, real-time bidding and individual targeting.

“Philip Kotler is a fascinating man who talks about tribes of influencers, but now you are talking about ad networks that inside the maximum allowed time of 250 milliseconds serve an ad when you show up on a website and I have an ad to fill, or in a physical place, geo-tracking. If I want to make sure I have the right message at the right time for you as an individual, I can serve an ad to you individually in 75 to 100 milliseconds, and also figure out how much that is worth. I need to know who you are as an individual and bid real-time.

“The processing power behind that, which is of course enabled by the cloud computing, is phenomenal. It is all moving too fast for anyone I know to feel like they have understanding or mastery. That is the challenge. How do you see things conceptually for the simple reason that if we really are operating real-time bidding, DoubleClick Ad Exchange can process half a million ad calls per second, its closest competitor can do 25,000 ad calls per second.

“I don’t care how smart you are, nobody can understand what it means to process 500,000 ad calls per second, that’s 30m ad calls per minute, gross that up to a single day – no human mind can comprehend this! We need to move to a meta-level of understanding – and this defies the smartest people in the world.”

I tell Rayport about an article I read recently on the website of the Nieman Foundation for Journalism at Harvard about how Pearson’s Financial Times newspaper has used analytics to turn its fortunes around and thrive while many news outlets are struggling.

“The problem with most newspapers, PR firms and every media company in the world is they are filled with brilliant people but they are not technology people,” he replies. “The question is who will rule the future of content – the content guys or the guys who own the pipes and analytic engines? Neither will, unless you create some brand alliance between the two.

“Hopefully that is going to be the answer for where media is going and creating viable business models to underpin viable world class media organisations,” Rayport concludes. “With the right understanding, the future for media and marketing could be brighter than it ever was.”

This article was originally published in Marketing Age, Volume 4 Issue 3 2010

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Editor John Kennedy is an award-winning technology journalist.

editorial@siliconrepublic.com