According to TV ad-targeting firm Simulmedia’s new CMO Brian Wieser, online advertising hasn’t just become a critical component of the American economy, it has historically been one of its formative forces.
“Historically growth in advertising has fundamentally occurred as long as the economy has continued to grow,” said Wieser in recent conference call with journalists. “But economic growth doesn’t cause advertising. The creative destruction inside of the economy, paired with a fundamental tendency towards oligopolistic competition means that with a lot of larger sectors you have the ongoing creation of new industries which differentiate themselves by advertising.”
During the mid-90s at the beginning of the digital advertising age there were about 5,600 companies, with assets in excess of $200 million, which spent an average of $14 million on advertising, according Wieser, who was global forecasting director at Magna prior to joining Simulmedia. Those figures remained virtually unchanged 14 years later, said Wieser, but the number of large companies with more than $200 million in assets more than doubled according to IRS findings. New industries and business sectors meant more competitors, making large advertising budgets a necessity for the biggest names, although large companies kept spending levels at the status quo.
“It is very interesting to think that from 1994 – when you think about the commercialization of the Web, how those stats illustrate what I’m saying,” said Wieser. “We had the rise of the pharmaceutical sector then, it was illegal to advertise pharma before and then suddenly you had all of these consumer brands. You had the creation of many national retailers and big box e-retailers all of which were competing on a national scale. You had the rise of the wireless category and consolidation most importantly– from a purely game theory perspective — leaving four or five major players which is perfect for what drives advertising.”
That ongoing source of advertising market growth – the evolution and consolidation of new business categories – hasn’t let up, said Wieser. Despite the state of the American economy, because advertising defines the public face of brands, retailers and industries, brands are seeking more quality impressions for their ad spend.
“There are the “haves” and the “have-nots” of media,” said Wieser. “As I mentioned before, the “haves” held their budgets pretty flat over any extended time. But within that constraint if you are the budget decisionmaker for a brand, you know your budget is going to be flat, and you’ve got inflation and the price you are paying for any given impression is growing by mid-to-high single digits. So what advertisers are having to do, although there is some trading down so to speak in an online context, is that you’re taking some inventory from an ad network, versus display from a portal.”
When Inflation rates exceed the rates of budget growth, major advertisers “have to decide what is their primary and what is their secondary media and other media gets discarded.” Companies seeking to gain more for their advertising dollars are drawn to the economies of the online ecosystem.
“For an average advertiser maybe 10 years ago if they were putting money online they were buying mostly premium inventory at $10 or $15 CPM,” said Wieser. “Ad network inventory has been available for pennies. If you are becoming comfortable with the idea of audience in an online context, then it becomes pretty compelling to shift some of your buying into ad network inventory to control your costs.”
This has created a new way of looking at media among major advertisers, Wieser asserts.
“For many of the largest advertisers attempting to distinguish themselves on the basis of their brand, they use TV for awareness as a primary medium, and online advertising for engagement.”
Print and magazines have fallen out of favor, said Wieser, because the Web is beginning to satisfy advertiser’s needs for engagement and awareness. “Do advertisers really need magazines? Not so much,” said Wieser. “It’s less about what the consumer is actually doing than about what medium satisfies a brand’s goal relative to an available alternative.”