Advertising Technology

Is a Second Digital Winter Looming?

Tom260By Tom Hespos

Take a look at the most senior person on your digital staff – the one who lived through the first dot com boom.  Has she been anxious lately?  Here’s why.

I can’t overstate the effect the bursting of the dot com bubble in the latter part of 2000 had on the people who were then blazing the trail in interactive.  Billions of dollars of market cap evaporated overnight, and digital moved from being the source of tremendous opportunity to a dirty word in a very short period of time.

The pundits say the dot com crash was something that was easy to predict, but it’s important to remember that those same pundits were claiming all along that digital’s dark days were just around the corner.  From a period lasting from early 1996 through the latter half of 2000, digital media seemed to be limitless in its potential and it shrugged off any suggestions that an end to its radical reinventions of old business models might have been in sight.  “How much higher can it go?” was a common refrain during that time.

In retrospect, the indications for the crash were all plainly visible.  But it was the alignment of a number of those factors that ultimately brought the digital media industry to its knees.

Let’s get back to your seasoned digital staff for a second, though.  The reason why they’re so skittish and unsettled lately is that they might see parallels between where we were at the onset of the crash and what’s going on in the industry today.  A lot of those same contributing factors are present in the business today.  Putting aside the chilling effects of the terrorist attacks of September, 2001, by which time the crash was already fully underway, here are some of the big factors that helped bring about the first Digital Winter:

A Sector Bubble – “Irrational Exuberance” was the term most used to describe the money being poured into investments in digital media companies in 2000.  Sound familiar?  While the approach to investing this time around might be a bit more reserved, there is still quite a lot of investor money chasing unrealistic outcomes in the ad tech sector.  The money has shifted from portals and eCommerce players to enabling programmatic technologies, but the parallels between the two situations are undeniable.

Kool-Aid Overindulgence – The arrogance of 1999 is paralleled in 2016 by an assumption, on the part of the digital industry, that marketers with money to spend should want to become fluent in its obscure jargon and experts regarding its confusing landscape of innumerable potential partners.  While many marketers are exceptions to the rule and do what they can to promote internal centers of digital excellence, few are interested in the distraction that nuances in programmatic bidding strategy can present.

Wrong Metrics – The inability to connect digital success metrics with overarching business objectives is an historical failure of the digital media industry that one might argue has never gone away.  In 1999 it was overreliance on click rate as a performance indicator, which significantly devalued what digital media campaigns were bringing to the table.  More recently, it’s a continued failure to connect various flavors of engagement, viewability and direct response actions to business success.  “We don’t know what we’re getting” was a common saying among marketers at the end of the bubble last time.  While it’s true that the right digital experts can illuminate digital success for marketers, there are still a lot out there wondering how digital programs are building their business.  And it’s because we’ve concentrating on measuring the wrong things.

Devalued Media Currency – From the commercial explosion of the web in 1994 through the crash in 2000, the value of an ad impression consistently dropped over time.  In 1999, it was the emphasis on CTR that devalued it.  Marketers then would often misguidedly attribute the success of an online ad with the percentage of people viewing it who clicked on it.  With that shift came a huge devaluation for the online ad view.  These days, we have a much more potent devaluing force – the limitless supply of ad impressions – that continues to drive value down.  It’s worse than it’s ever been, and market conditions have devolved to the point at which traditionally successful media brands can no longer afford to underwrite the costs of content development and production.  If there’s a silver lining, it’s that things cannot progress down this path forever.

Rewards for Bad Players – That senior-level digital expert has probably seen a bunch of his friends (and many more casual acquaintances) step into the industry briefly and exit with obscene sums of money.  It’s because those people likely didn’t have their eyes on building a thriving industry, but instead concentrated on riding the aforementioned wave of irrational exuberance with a defined exit strategy.  While nobody ought to be faulted for wanting to make money, the emphasis on capitalizing on short-term gain is both disheartening and telling for anyone who entered the business prior to 2000.  Even IAB CEO Randall Rothenberg called it out during his most recent speech at the IAB Annual Leadership Meeting.  Between his comments on ad blocking and revitalizing the digital ad industry, he asked attendees to reflect on their motivations for working in the industry, and dropped this:

“But if money is your only goal, then you risk falling into relativism – a pernicious trap, for you begin weighing all potential returns based on the single metric of how much more money you can make. Truth, beauty, fairness, justice, honesty, civic pride, neighborliness – they become means to an end, rather than ends in themselves. That is debilitating, and ultimately deadens the soul.

I want you to confront that challenge. I want you to remember that there are greater and longer-term values than the mere promise of financial wealth that attracts so many to the digital advertising industry.”

When the head of the organization of record for digital publishing says things like that, it’s reflective of a serious issue in the business – that we’re questioning the value of what we’re delivering, even as we’re innovating.

 

I don’t wish to dwell on the gloom and the doom, but I’ve noticed a permeating condition in the digital ad business over the past year or two, and it’s beginning to make senior people in the business very nervous.  No, it’s not a nervousness brought about by the disruption that automation can bring, or the subsequent questioning of one’s skills in the aftermath.  It’s a much bigger worry than that.  Many of us set out to build a sustainable vision for the future of digital marketing, but if these conditions persist, the next Digital Winter could be on the horizon.

 

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