Advertising Needs A New Business Model

Advertisers, marketers, and the mass media are often wowed by the size of the $550B global advertising industry, which is predicted to exceed $600B in 2017.

Yet, as a measure of GDP, advertising has mostly hovered between 1 - 1.4% (averaging 1.29% of GDP). Currently, the ad industry is near an all-time low.

A 2014 Bloomberg article, Advertising's Century of Flat-Line Growth, concludes that advertising is not a growth industry. New media technologies simply follow a rapid 5 year upswing, and then the entire advertising industry returns to normal. It claims the only way to increase profits in advertising is to steal market share by shifting ad budgets (print to radio, radio to TV, and TV to the internet).

Alternative hypothesis

Each new media technology comes with promises of better advertising. Excited advertisers pump money into the new medium by shifting their budgets, and increasing total ad spend.

After many experiments, advertisers discover that the new media technology is fundamentally the same as the last, and failing to see the promised results, they drop their ad budgets back to pre-hype levels.

The insight

While the underlying technology changes, the business model stays the same.

The current business model

The broadcast advertising business model dates back to the late 15th century - it's 500+ years old. Print, radio, tv, and internet advertising are simply different distribution technologies that implement the same broadcast ad model.

For simplicity, the business model of broadcast advertising can be summarized as:

Advertisers and services negotiating the value of consumer attention.

This method has always had a major flaw:

The recipients of broadcast messages are unknown to advertisers.

Today, this business model remains unchanged.

The business model needs to change

After a century of tremendous technological innovation, the broadcast ad model has failed to grow the ad industry. It's time to consider the possibility that technology isn't the primary driver of value for advertisers.

The key to growing the ad industry is to change the way that advertising actually works - to change the business model for advertising.


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