SpectatorBytes

Over the past couple of years, I have advised the digital companies with which I am and have been involved to minimize their marketing spending. Instead, I have advocated that management teams focus on product development and maximizing distribution, which I strongly believe is a superior recipe for success.

The list of digital products that have gained mass adoption with minimal advertising spending is long and well known. It includes companies like Google, Facebook, Twitter, MySpace, YouTube, AIM, Skype, etc. Many of these companies have focused on offering a great user experience and have been aggressive in securing distribution deals to enable adoption. Google invested in getting an AOL deal. YouTube leveraged MySpace distribution. Skype secured partnerships with portals. More recently “open initiatives” have been used to achieve the same objective. When Facebook opened its platform, it created an ecosystem of products that has both enhanced the user experience and marketed the Facebook brand.

This has gotten me thinking: What if this formula of success extended beyond Web products into other types of businesses (e.g., autos, food, appliances, toys, hardware devices, etc.). This would imply that overall advertising spend is likely to decline over time as companies rethink their approach to the marketing function.

To properly evaluate this thesis, we need to understand why successful Web companies have not required a traditional advertising model:
- User experience and utility have proven to be the main drivers of user adoption for Web products today. Poor quality products struggle to attract and retain users;
- Compelling consumers into using lower quality experiences has become much more difficult. Thanks to blogs, social networks, and product reviews, consumers are increasingly highly educated about the strengths and weaknesses of products;
- Ads are increasingly challenged to break through the clutter. Consumers are not only increasingly skeptical but also turned-off by the abundance of marketing messages. They also now have tools to help them avoid those marketing messages (e.g., Tivo);

These drivers would seem to also apply to non-digital products. Consumers now have access to vast levels of information about all types of products. They also have the ability to easily tap their friends and “friendsters” for advice on a particular product. Product information now travels at warp speed among consumers. As a result, traditional marketing messages will likely have a diminished role in influencing their decision-making.

As a result, companies may be inclined to increase their investment in product development at the expense of brand marketing spend over time. As quality and value emerges as the key factor in consumers’ purchase decision-making, focusing on product development is likely to provide a much more effective way to break through the clutter than aggressive mass-marketing practices. Hence, marketing initiatives can be expected to be much more targeted than they are today as CMOs seek to show increased effectiveness from their efforts. As marketing initiatives become laser-focused on reaching “influencers” rather than blasting messages indiscriminately, overall marketing spending requirements may decline. After all, the Web provides a much more cost-efficient way to reach consumers than other media.

Similar to other consumer-driven businesses, the inefficiencies of current marketing and advertising practices will be exposed by digital technologies. Once this happens, the result is likely to be a decline in overall marketing investment. As a result, the proverbial half of marketing spending that is wasted could be readily identified and eliminated.

The impact of the digital revolution on marketing and advertising spend will not be felt fully for some years. However, digital and traditional media businesses need to begin considering the implications of this trend on their overall business models and cost structure for the future. Thus far, the media industry’s transformation efforts do not seem to have factored in a potential long-term decline in advertising revenues.
I would not be surprised if the overall brand advertising pie could continue declining, even after we get through the current economic downturn. What do you think?