Getting the Digital Dollars

It is often said in the advertising business that all advertisers know they are wasting half their money, they just don't know which half! Ken Auletta's new book "Googled" features this truth front and center. The book does a great job of showing how Google is working hard to eliminate inefficiency in the advertising market. The newspapers and other media types are all up in arms because they make a living out of selling both halves. The "Trading analog dollars for digital dimes" quote of NBC Universal CEO Jeff Zucker in Auletta's book is repeated over and over as the media industry tries to hang on to its current business model.

So does this mean that the advertising industry is going to get cut in half as soon as Google (or anyone) illuminates all of the waste? Clearly the media people in "Googled" think so - but I think not. Exposing and eliminating the waste will reduce the cost of customer acquisition. If half the money is being wasted due to the opacity of the industry, and all of the waste can be eliminated -- the cost per acquisition will also be cut in half.

This is the dream of the marketing VP. Not because the VP wants to cut the advertising budget in half -- but because at a lower cost per customer acquisition the budget will go twice as far -- and the overall volume of advertising will go up dramatically. It could even go up by more than 2X! No doubt advertising spending will rotate away from ineffective or non-quantifiable methods and towards measureable methods. But the total spend should go up as advertising gets more efficient.

We are all getting better and better at measuring the cost of acquiring each additional customer. Some might say it was more fun before when we just spent a bucket of money and got a bucket of customers. Measuring the cost of each new customer is definitely hard work. But it is getting easier all of the time and now we often can measure the cost of each additional acquisition. Data driven decision makers know the maximum amount they can spend acquiring a new customer. So they know when to stop an advertising or marketing campaign: when the cost of the next customer acquisition is higher than the maximum allowable cost. More efficient advertising means more advertising because it will take much longer before the maximum is reached.

True companies without the ability to measure their effectiveness will fail and jobs will be lost. I argue that more value, more new companies, and more jobs will be created on the measureable side of the equation and not just in advertising. A company with lower customer acquisition costs -- can acquire more customers for the same amount of money. More customers equals value and job creation.

What about brand building you ask? Isn't brand building non measureable by definition? That is also a great subject...
... let's just give the brand building dollars to the not for profit sector.

Comments

[trading for a living]

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trading for a living