It’s Not Your Father’s Ad Industry

The advertising world will see more dramatic changes in the next five years than it has in the last 50, according to a recent study by IBM Global Business Solutions

The study, titled “The End of Advertising as We Know It,” predicts that interactive advertising growth will outpace traditional advertising by nearly fivefold in that time.

Surveying more than 2,400 consumers and 80 advertising executives around the world, the study concluded that new technologies are making advertisers more self-reliant, calling into question the role of the traditional ad agency.

“Digital entertainment is experiencing faster adoption than anyone had previously anticipated,” said Bill Battino, communications sector managing partner at IBM Global Business Services, in a statement. “Companies must re-look at how they serve content to consumers with business models based much more on engaging consumers in a relationship.”

However, the study cautions that its own figures, if anything, are conservative and may need to be revised. IBM reports that over the past two years, online advertising has exceeded forecasters’ projections by 25 percent to 40 percent.

IBM projects 22.4 percent growth in spending on new ad formats, including mobile advertising, Internet, interactive TV promotions and in-game advertising. That figure is in line with the findings of a similar study recently conducted by eMarketer.

By contrast, traditional channels such as broadcast and print can expect growth rates in the low single digits.

So who’s to benefit from this shift? More than half of the ad professionals surveyed expect Google, Yahoo and other open advertising platforms to grab 30 percent of revenues that currently belong to broadcasters and other traditional media outlets.

Respondents are spending more significant chunks of time on the Internet than watching TV, particularly the youngest consumers.

“Younger audiences are far more willing to experiment with new content sources, though less willing to pay, particularly for online services,” the study found.

One result will be a fragmenting of distribution channels that will force advertisers to move away from their audience through one-size-fits-all mass broadcasts.

As they struggle to adapt to a consumer base that increasingly expects control of its content, advertisers will have to come up with new ways to package their messages. Some of the most striking changes could come in video, as the study finds that consumers are losing patience with traditional commercials.

Citing the increasing DVR uptake, the study suggests that “traditional television advertising may be the first major casualty of changing media consumption habits.”

But marketers are still wrestling with the question of how best to harness video, as they shift their budgets online. Forty percent of those surveyed said ads that appear during online video segments are more irritating than any other format.

The study also notes the trend of advertisers bypassing agencies and taking their messages directly to the people as a way of cutting costs. Sites featuring user-generated content like YouTube play a major role in this shift, as many brands have launched viral campaigns where consumers are recruited to produce their own ads.

Some industry insiders are uncertain just how disruptive consumer-generated advertising will be, however, downplaying the threat that these new, viral campaigns pose to agencies.

The study concludes that consumer control of content will be the most disruptive factor over the next few years. This plays out in a scenario IBM describes where “virtually any advertiser can reach any individual consumer across any advertising platform — as long as the advertising is relevant and appealing.”

For such an environment to emerge, advertisers will have to develop better ways of measuring ROI, as their campaigns become increasingly fragmented and reliant upon viral distribution. To this end, advertisers will shift from an impression-based model to one that actually measures impact, the study concludes.

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