Blaming the blockers: What’s the future of online advertising?

Gigaom

The Internet Advertising Bureau and its members are stirred up by two trends in advertising technology: The release of future versions of web browsers such as Firefox that ship with third-party tracking cookies turned off by default, and the rise of ad blocking software such as AdBlocker Plus.

Congress is getting into the ad blocking game by filing legislation to make “Do Not Track” the law of the land, and consumers are on high alert about their personal privacy in the aftermath of the NSA Prism disclosure. While privacy concerns over digital advertising are as old as the Internet itself, the prospects are especially bleak for the digital advertising and marketing industry just as the category appears poised to dethrone television advertising as the dominant form of advertising.

The Adtech arms race

Randall Rothenberg, the president of the IAB, wrote in a blog post on the IAB website entitled, “Has Mozilla Lost Its Values?”:

“….the company’s civic positioning and public character are heavily freighted with antipathy toward advertising and the commercial Internet. For example, Mozilla is the world’s largest distributor of Adblock Plus …. ad blocking appears to be a victimless endeavor, but in fact is a possibly illegal activity that deprives a cascading chain of legitimate enterprises of income.”

The technology that targets and serves advertising, and the technology that blocks it is an escalating arms race with the advertising world blaming technology for enabling piracy and robbing publishers of the revenue they need to stay in business. Content producers and advertisers suing to stop technology is an old tactic, yet one that hasn’t worked yet and which only calls down more attention and awareness to the issue. From the VCR to Tivo, from the Hopper to Ad Blocker Plus – the reaction of the advertising and media industries to emerging threats is to blame the technology, file suit and hope the problem can be legislated or ruled out of existence.

What’s needed is a long, overdue look at the very broken process the Adtech world is trying to preserve and some brave innovation that will change the adversarial relationship between advertisers and the customers they want to reach.

The fall of the banner ad

It could be argued the last big advance in advertising models was the invention of contextual paid search by Bill Gross at goto.com in the late 90s; the very same model adopted by Google that is the foundation of the company’s $300 billion market capitalization and represents almost half of the entire interactive advertising spend in 2012.

Now, a decade and a half later, the next big thing is “native” advertising or “content marketing” – an old wolf in the sheep’s clothing formerly known as “custom publishing” that blurs the line between objective journalism and suspicious advertorial.

Hanging on in the background, refusing to die, is the lowly banner ad, the display unit invented by Hotwired, Wired’s pioneering website in 1995. It’s a form of advertising that has devolved from the standard of web advertising into a high-inventory, low-priced, unclicked and unloved ad unit that remains one of the bulwarks of bad advertising.

The reason the banner lives on (and the reason Ad Blocker Plus is the most downloaded and installed browser plug-in in history) is third-party tracking cookies. Before I switched off banner ads and third-party cookies two years ago I saw an ungodly number of ads from (among others) my former employer, PC maker Lenovo; the Seattle outfitter and clothing company, Filson; and my local boatyard supply company: Jamestown Distributors. The connection between my visits to those brands and their incessantly tailing me with banner ads was obvious, yet, over time, as they persisted with the retargeting they didn’t induce me to suddenly buy a new PC, flannel shirt, or gallon of epoxy. Instead I questioned their blind obliviousness to the state of my relationship with them.

A feedback loop is better than an opt-out

Third-party cookies don’t permit much in the way of a two-way interchange between a consumer and a mindless ad insertion engine. Yes, the IAB, the Direct Marketing Association and others are trying to dodge the wrath of the Federal Trade Commission with opt-out programs such as Youradchoices.com, but few display ads give the recipient the opportunity to click a box on the ad to let the vendor know, “No thanks, only looking” or “Hey, I’m already a loyal customer and I was just visiting to download some drivers.”

Retargeting works and it has breathed a second life into the flagging fortunes of banner display advertising. I used it during my time at Lenovo when I ran digital demand generation for the company’s e-commerce engine, and can attest that it works, or at least can be correlated to an uptick in “success events” such as e-commerce sales. But like second-class junk mail, digital advertising declares success in micro increments measured in basis points. A 1 percent yield is cause for celebration. One. Percent.

As Cloudera’s Jeff Hammerbacher infamously said in 2011, “The best minds of my generation are thinking about how to make people click ads. That sucks.”

As the browser becomes less dominant of a delivery vehicle for advertising, and the rise of small, mobile device screens continue to unseat the old PC-Browser model for ad delivery, advertising is evolving in a few promising directions.

Meet the future of online ads: VRM

First, social advertising is putting some degree of intelligence into ad serving by associating a consumer’s social graph, or matrix of relationships, with their intentions and preferences. The crucial component of trust that comes with a friend’s recommendation is inherent in social networks, and there is no question that a first-person reference is the most powerful factor in determining and influencing purchase preference patterns.

Second, the capability for brands to detect desire in the social stream is going largely untapped. The paranoia that forced companies with bad customer service records — Dell, Comcast and JetBlue — to formally monitor the social streams for expressions of unhappiness and dissatisfaction can be turned into identifying potential customers turning to their personal networks for advice and guidance on future purchases.

How deftly a company intercepts and responds to those public utterances is a matter of diplomacy, but it does point to the most potentially powerful shift in advertising to come — a complete turning of the tables from advertisers interrupting consumers with blind, or semi-blind targeted messages to consumers using the two-way channels to invite brands to come back to them with offers, bids, discounts, etc..

The utopian vision of the future of advertising has always called for a higher level of intelligence and interaction between the advertiser and the customer. Go back to the first and very prescient thesis of the Cluetrain Manifesto: “Markets are conversations” and project forward to a future as imagined by one of the Cluetrain’s original authors, Doc Searls at Harvard University’s Beekman Center for Internet and Society. Searls is promoting a model called Vendor Relationship Management, or VRM, an about-face of the Customer Relationship Management model known as CRM.

Project VRM describes itself as follows:

VRM tools provide customers with the means to bear their side of the relationship burden. They relieve CRM of the perceived need to “capture,” “acquire,” “lock in,” “manage,” and otherwise employ the language and thinking of slave-owners when dealing with customers. With VRM operating on the customer’s side, CRM systems will no longer be alone in trying to improve the ways companies relate to customers. Customers will be also be involved, as fully empowered participants, rather than as captive followers.

Publishers are the sticky wicket

The big issue is the role of publishers as the go-between in the advertiser/customer transaction. Using impressions and page views to build brand awareness has never been the strong suit of digital advertising, where some estimates have 80 percent of the spending focused on the bottom of the mythical marketing funnel – last click tactics to get us to stick stuff in shopping carts or download execrable white-papers. A VRM model could cut publishers out of the transaction, or, accelerate the transaction between brands and buyers by aggregating a qualified audience and giving them the modern equivalent of the old “bingo” reader-service cards that used to litter the back pages of our parents’ magazines.

It has been said that technology has an uncanny ability to solve untenable problems. As my ex-editor at Forbes liked to point out, in the 1880s New York City was sinking under tons of horse manure, a stinking, pestilential horror until lo, along came the automobile and suddenly manure was a worry of the past. While technology is killing the digital advertising model that sustained the Internet for the past twenty years, it is also opening up an immense opportunity that is beginning to emerge dimly from the fog of the future.

David Churbuck is an ex-tech reporter and digital marketer who now gives solicited advice at Eastman Advisors in NYC and blogs at Churbuck.com/wordpress.




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