Excellent Post On the new Advertising from John Robb - see the link to Cluetrain and Gonzo for more context if you have not heard of this before.
The issue is Trust - not just in advertising but in all aspects of work relationships.
My sense of advertising now is that it is akin to the use of artillery in the early years of the first world war. The idea behind the Somme was simply to move more weight. But the heaviest barrage of all time did not cut the wire nor destroy the dugouts - result 60,000 causalities. The British response - we did not use enough weight. The Canadian response - let's add science to the artillery and specifically target the threats - the result the capture of Vimy Ridge which had been impregnable.
I think that we are now immune to the conventional advertising message. We have been overwhelmed by the noise of so many message. Just turning up the volume and being more annoying (Pop Ups) is pissing us off.
It's the same in corporate speak inside organizations we cannot hear for all the bullshit - only organizations that talk to each other in human terms will be heard.
Glitz and spin are a waste of time now
NYT. Yahoo woos advertisers.
Trust-based Advertising
I was always surprised how quickly companies jumped at the chance to spend huge dollars on generic portal advertising. Almost always, it resulted in a disaster. In the brokerage business, the classic example was MSN Money's "pick a broker" section. It merely listed 5 brokers. To be listed, the brokers paid $250,000 a slot. The end result was that the cost of customer acquisition from the slot was $5,000, almost 2 orders of magnitude over the target of $150 (they made money on customers that cost less to acquire than $250). Yahoo and AOL had the same problem.
In contrast, my old company built an online decision making tool with objective information focused on people selecting a financial services firm. Over 25,000 people a day used the tool to select a broker. Many brokers scoffed at the idea that they should pay for advertising on a site with only 25,000 people visiting it. That was until I offered to set up a service that allowed people to ask for more information directly from the brokers (fully disclosed to the customers using the service). For this service I charged $10 a name. In the first month, with only a few brokers participating (out of a pool of 30), the service generated $30,000 (3,000 requests). After the second month, it was up to $45,000. I then asked them what their experience was with the names that we sent them. They responded that they were getting a 30% conversion rate (which means that they were highly qualified leads) and that the customers they got were some of the best customers they got from any source (the people that selected them had done their homework and were satisfied with the broker they selected).
The next step, of course, was to ask the brokers what they were willing to pay for a converted customer. They said $150. So, we offered to build a system where they only paid us for the converted customers, but they paid us $150 a pop. The result was staggering. We quickly were able to sign up almost all of the brokers to this service and were able to generate $2.2 m a quarter in revenue (over $500 k a quarter in profit). The brokers were happy, the customers we sent them were the best they got. The customers were happy, we were able to share some of these fees with them as a spiff for doing their own homework (usually $50) and they had all the information they needed to select the broker that fit their needs. We were happy because we were generating 5% of all new online brokerage accounts in the US and getting paid for it.
The conclusion I reached was that traditional "eyeball" based advertising was dead. Customers want objective decision making tools to decide between alternatives and advertisers want to pay for acquired customers and not eyeballs. Unfortunately, every ad firm or portal I talked to refused to see it this way, they were too busy pushing the old, ineffective model of advertising. I still believe that this is the future of advertising despite the resistance of the existing players. Here is the new model.
Generic content --> Trusted decision support ---> Performance-based advertising = huge profits
Of course, the big portals and advertisers still don't get this, but you can see Yahoo flirting with this in the quote below. They are starting to provide more focused content, but it isn't objective content. In the Yahoo model of focused content, customers get screwed. A better approach would be to use a trusted weblogger to provide objective content on specific areas (like wireless phones, home PCs, etc.). Also, the advertiser shouldn't pay Yahoo for anything other than converted customers -- a pay for performance system. In this model, it would be possible for Yahoo to accept performance based advertising from all the potential alternatives. So, regardless of what people select, they are likely to get paid for delivering a happy customer that is secure in their choice (this goes a long way to eliminating the conflict between advertising and editorial objectivity).
For example, Verizon Wireless was a major sponsor of the Yahoo "mobile" section, but was not happy with the number of customers it was getting. It was able to persuade Yahoo to create a new section on the page called "hot devices" in which it could feature its latest phones. Response rates increased tenfold.
Of course, this isn't going to happen anytime soon. Why? Trust needs to be inserted into the equation. Trust by customers in the decision making tools. Trust by media companies that advertisers will accurately report their customer conversions. Trust by the advertisers that the decision making tools will be objective and not treat them unfairly. As always, trust is in short supply, but I think that can change. [John Robb's Radio Weblog]
10:41:47 AM 
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