The Paradox of ROI in the Ad Industry

1. EXECUTIVE VIEWPOINT
The Paradox of ROI and Decreased Spending
in the Ad Industry
Paradox Defined Thrift: Increased savings by individu-
A paradox is defined as a statement als will result in reduced saving for the
or concept that contains conflicting overall population.
ideas. While the statement may seem Other paradoxes exist in the world
to be self-contradictory or absurd, in we live in. Some of my favorites include:
reality it expresses a possible truth. • We have wider freeways and longer
If you’ve read the Wall Street Journal commutes.
over the last several months, you may • We have bigger houses and smaller
have read an article that referenced families.
the economic theory “The Paradox of • In a Windows environment, it is a
Thrift.” The theory, authored by econo- paradox that when we want to shut
mist John Maynard Keynes, states that down our computers, it is necessary
during an economic recession individu- to click “start.”
Lance Richard al consumers will increase their savings
Sales Director, VP of Sales, at a rate greater than the rate at which Every industry is affected by a para-
Monster MediaWorks they normally spend. Paradoxically, the dox. The industry within which I work,
aggregate of all consumer savings will the advertising industry, has an intrigu-
actually decrease as a result. ing paradox in play that is altering its
With closer analysis of the two traditional business model.
Lance Richard is regional sales direc-
tor for Monster MediaWorks. He directs conflicting concepts in this paradox,
the internal sales organization for a this theory actually makes sense. The The Paradox of ROI
proprietary network of websites owned first conflicting concept asserts that in the Ad Industry
and operated by Monster Worldwide. when a recession hits, it is common This article will focus on a paradox
These websites include Monster.com, for individuals to reduce spending that is affecting the advertising in-
Military.com, FastWeb.com and Af- and increase savings. Eventually these dustry that I call the Paradox of ROI
finityLabs.com. thrifty consumers grow more confi- (Return on Investment). The opposing
Prior to joining MediaWorks, Richard dent in their personal economic condi- concepts in this paradox are “Increased
held senior positions with Emmis Com- tion and resume spending at the same Advertising Performance” that results
munications as director of sales; IP2M pre-recession levels. Assuming that the in “Decreased Spending” on advertis-
(a start-up dot.com) as executive VP majority of consumers follow this path, ing. How can it be that when an ad-
of sales and strategic marketing; Clear it stands to reason that consumers will vertising solution delivers better results
Channel Radio as director of sales and have in effect, pushed the reset button to an advertiser, the advertiser reduces
Fox97 Radio as general sales manager. on the economy and thus the recession their ad spending?
Richard was a featured speaker at quickly ends. This paradox is worth exploring as it
the Radio and Records 2006 conven- The second concept is based on the promises to disrupt an industry that ac-
tion and is a member of the Chicago negative effects of increased savings. cording to eMarketer generated $269
Interactive Marketing Association and When a significant percentage of the billion in annual sales in 2008. This in-
the i612 digital media organization in general population saves more than dustry employs thousands and touches
Minneapolis. they consume, the result is a slowdown every part of society including televi-
in overall consumer demand, increased sion, radio, movies, music, professional
Monster MediaWorks connects
product inventories, and reduced sports, billboards, direct mail, newspa-
clients with “fulfillment seekers” via
manufacturing. Less manufacturing pers, magazines, cell phones, and hun-
innovative products, ground-breaking
results in reduced wages and lost jobs. dreds of thousands of websites.
ideas, industry-leading customer service
Reduced wages and lost jobs translate Since this paradox relates to an
and cost-effective solutions that deliver
into less household income and as a industry with some unique language,
on the clients’ objectives.
result savings for the entire population it might be beneficial to review com-
actually decreases. Thus the Paradox of monly used terms and phrases:
Fall 2009 • Vol. 24, No. 2 11

2. Richard
Advertising Agency: A company hired party service. Advertisers are in often at the top of the list. As an in-
by an advertiser to act as an agent on turn charged a fee for each unique tangible product, managers often find
its behalf to develop and execute ad- ad delivered. it easier to cut an advertising budget
vertising campaigns. versus an employee.
However, advertising is an impor-
Ad Medium: A business entity that Two Business Concepts tant component of a business model
publishes, broadcasts, or disseminates
advertising in the normal course of in Conflict as it has a direct influence on sales.
its business, including the following: Two conflicting concepts exist with- Customers must be reminded on why
1. Newspapers in the Paradox of ROI as it relates to they need a product, what it costs, and
the ad industry. As a basic pillar of capi- where they can buy it. In a weak econ-
2. Magazines
talism, ROI is a driving force behind omy, smart business leaders continue
3. Radio and television networks
product innovation. Advertisers seek to advertise but will seek ways to do it
and stations
out ad mediums that will deliver more more efficiently.
4. Cable television systems
value for the dollars they spend. In an The last significant recession to hit
5. Websites
effort to earn their customers’ business, the U.S. was the recession that cata-
Old Media: A general term used to pulted Bill Clinton into his first term
describe ad mediums that rely on a ad mediums constantly seek to improve
their products. Ad mediums that are as President. The advertising landscape
“one-message-to-many” ad delivery during that recession was populated
model. Old media includes: news- successful in improving results are re-
with ad mediums collectively referred
papers, magazines, radio, television, warded with increased sales and reve-
to as old media. In 1990 there were just
direct mail, and billboards. nue, all based on their advertisers’ ROI.
three major television networks (ABC,
The number and availability of ad
Online Media: A general term used NBC and CBS). Cable television was
media in the industry has increased sig-
to describe an ad medium delivered just starting to gain traction. Major
nificantly over the last ten years. One newspapers still dominated local media
through the internet that utilizes a
new medium that has had a significant in every major market. Radio was the
“one-to-one” ad delivery model. On-
impact on the ad industry is online me- only vehicle for teenagers to discover
line media includes search engine
dia. With online media’s ability to ac- new music. The Internet was relatively
portals like Google and websites like
curately track the delivery and response unknown, and the founders of Google
MSNBC and ESPN.
of ad campaigns, it has significantly in- were still in high school. Advertisers
Nielsen TV Ratings: A survey estimate creased ROI for its advertisers.
of television viewing conducted by that cut back during this recession did
The second conflicting concept so evenly across all of their old media
the Nielsen Media Research Com-
in the Paradox of ROI is “Reduced partners. For the most part, advertising
pany. TV viewing estimates are used
Spending”. As the perception of im- companies survived that recession.
to establish the number of consumers
proved ROI has increased, advertisers As the economy of the early 1990s
exposed to a television commercial
are realizing that they are able to spend turned from recession to recovery, ad-
and to establish value and pricing.
less while maintaining the current ef- vertisers ramped up their spending,
Arbitron Radio Ratings: A survey esti- fectiveness of their marketing efforts. bought more ads, and cast their nets
mate of radio listening conducted by According to media research compa- even wider. This happened in spite of
the research company Arbitron, Inc. ny, eMarketer, growth in total ad spend- the fact that vendors and customers
Radio listening estimates are used by ing in the U.S. dropped by 3.6 percent in knew that a significant amount of the
advertisers to determine the num- 2008. While this slowdown in growth is dollars placed in old media would be
ber of consumers exposed to a radio directly related to the current economy, wasted on consumers highly unlikely
commercial and to establish value many industry experts believe that an to purchase their products. Advertis-
and pricing. increase in ROI is at work in driving ers at that time simply had no other
Scarborough Research: A survey esti- down total advertising spending. option. The number of media options
mate of newspaper readership con- Thus the Paradox of ROI: Im- was limited due to very high barriers
ducted by the research company proved ROI will result in less revenue to entry that existed in almost all of the
Scarborough. The estimated reader- growth for the ad industry. mediums that made up old media.
ship is used to establish the value and In the current recession, the adver-
cost of advertising line rates. tising landscape is much different. Ac-
Online Ad Impression: The delivery of A Different Kind cording to Nielsen Research, in 2009
a single ad on a website to a single of Recession the average number of television chan-
user. Each ad impression viewed by When business leaders look for nels that each U.S. home receives has
each consumer is tallied by a third places to cut expenses, ad budgets are reached a record high of 118. The new
12 Fall 2009 • Vol. 24, No. 2

3. Richard
Kindle e-reader allows users to digitally ing dollars and reduced media budgets ready seen newspapers in Denver
download an almost unlimited number have hit old media companies the hard- and Seattle shut down their print
of newspapers, magazines and books. est. With reduced demand for their editions. Several other newspapers
And finally, Websiteoptimization.com advertising solutions, these old media are reported to be close to bank-
announced that in March 2009 broad- companies are being forced to reduce ruptcy. As these publications fail,
band penetration among active Internet prices in order to survive. Advertisers are the dollars they were capturing will
users in U.S. homes is slightly more taking advantage of this opportunity by flow back into the market. A signif-
than 93 percent. reducing their spending further as they icant share of these dollars will go
Cable television has facilitated the come to the conclusion that they can to online media.
creation and financial success of many effectively reach the same amount of 4. Online content is improving and
new channels such as ESPN, HGTV, potential consumers for much less. This audiences are growing. As more
and AMC.The Internet has made it pos- downward spiral in pricing will further dollars shift to online media, more
sible for entrepreneurs like the founders reduce revenue and profits for old me- investment will be placed in the
of YouTube to start a billion dollar on- dia companies resulting in reduced staff, development of new and innova-
line media company with a $50,000 line services, and most of all investment in tive online content and applications
of credit from VISA. Lower barriers to product improvements. Without in- (like movies and television shows
entry have facilitated a surge in available vestment in their products, old media streamed live and/or on-demand
ad mediums, which translates into more will violate their customers’ expecta- onto your Apple iPhone). Advertis-
choices, more inventory, and lower costs tions of continuous improvements and ers and their dollars will follow these
for advertisers. increased ROI. Many old media com- potential consumers as they increase
Online media in particular has be- panies will fall behind healthy competi- the time they spend online.
come a game-changer for the ad in- tors and will find it difficult to survive in
dustry. Today’s consumer has complete the long-term. Revenue Will Return
control of what information he wants On the flip side, online media will The ad industry as a whole will con-
to consume and when he wants to find their futures more promising as tinue to evolve over the next several
consume it. The connection between they benefit from the shift in dollars years. As advertisers rebalance their
the media and consumers has changed from old media. I believe this shift will media mixes, shifting dollars away
from a one-to-many relationship into accelerate due to the following factors: from higher priced underperforming
a one-to-one connection. This one-to- 1. The economy will only improve old media ad placements, demand will
one ad delivery model allows advertis- slightly over the next eighteen eventually catch up with supply. The
ers to narrowly target their messages months. In a speech on May 6, timing of this switch in the demand
to consumers who are more likely to 2009, Federal Reserve Chairman curve is anybody’s guess.
purchase their products. From an ROI Ben Bernanke predicted “economic
perspective, online media provides ad- growth would be slow and that
vertisers with an ad medium that is able unemployment would continue to Survival and
to significantly reduce media waste. rise…perhaps peaking at just under Growth Strategies
10 percent early next year.” A slow Owners of old media properties
recovery means that advertisers will (television, radio, magazines, newspa-
The Ad Industry continue to look for improved ef- pers, etc.) are faced with the difficult
Has Changed Forever ficiencies in their media spending task of mapping out a survival strategy
Based on a study released by eMarket- and will continue to shift ad dollars in the midst of an industry in transi-
er in April 2009, total U.S. ad spending into online media. tion and an economy in recession. The
declined by 3.6 percent in 2008. Online 2. Prices for online ads will not increase bad news is that there isn’t an obvious
media’s share of total U.S. ad spending and will likely decrease. With a low path. The good news is that there is a
grew from 7.6 percent in 2007 to 8.7 barrier to entry and an increase in path to be found.
percent in 2008, and is expected to grow ad dollars shifting to online media, For old media to survive, they must
to 9.9 percent in 2009. The projected we will see new websites and addi- start by asking these four fundamental
shift in total ad dollars from old media tional ad inventory coming into the questions:
to online media from 2008 to 2009 is ex- marketplace. The increase in supply 1. Are old media companies deliver-
pected to be in excess of $1.1 billion. This will be greater than the increase in ing their content to their readers/
shift is directly related to online media’s demand. The result will likely be re- viewers/listeners in the format that
ability to deliver a stronger ROI. duced prices on ad units. they want? If not, are they willing
The ad industry as a whole has been 3. Many old media companies will go to adapt?
hit hard by the current recession. Shift- out of business. In 2009, we’ve al- 2. Do old media companies connect
Fall 2009 • Vol. 24, No. 2 13

4. Richard
with their readers/viewers/listeners
on a one-to-one basis? If not, are
they willing to start the conversa-
tion?
3. Are old media companies willing mIdweSt ASSoCIAtIon for
to invest in new technologies, new
products, and the human capital
that will help them forge ahead?
InformAtIon SyStemS
4. Finally, do old media companies
5 Annual Conference
th
have the right people creating a
path forward in a changing business
landscape? If not, are they willing
to search out those that can?
May 20-21, 2010
As media companies ask these
questions, they must remember that Minnesota state University Moorhead
consumer expectations of media have About 100 participants are expected to attend from the Midwest USA,
changed. Today’s consumers of media Canada, and beyond. The conference will provide an intimate environment to
believe that they have the right to get facilitate the sharing of ideas through research presentations, work in prog-
what they want and when they want ress, doctoral consortium, networking, etc.
it. Advertisers have similar expecta-
tions in that they believe they have the
right to deliver a message to the right
consumer at the right time….at a de- ConferenCe SIte CALL for PAPerS
creased cost. The answers to the above Minnesota State University Moorhead The annual MWAIS conference
questions must deliver on these new 1104 7th Ave. South will accept papers on the state-
expectations. Moorhead, MN 56563 of-the-art pedagogy, research,
and service across the Midwest.
(ph) 1-800-593-7246
Papers are peer-reviewed and
Summary will appear in the conference
The Paradox of ROI can be applied
ABoUt moorHeAd, mInneSotA proceedings.
to almost any industry. Customers will
always demand a better product… a Moorhead is located in the heart of red
river valley of Great Plains region, the ComPLete GUIdeLIneS
better solution… a new and innova- conference location, in its close proxim- Visit www.mwais.org
tive way to conduct business. As scary ity to some of the beautiful lake areas of
as it may be for company leaders to Minnesota, provides easy driving access
consider, they must embrace a culture for any outdoor attractions. Conference Co-Chair
that encourages employees to attack ashish Gupta, Minnesota State
and improve existing processes and University Moorhead
products. ABoUt mwAIS
Companies that strive to constantly We serve the needs of information tech- Program Co-Chairs
nology thought leaders in Illinois, Indiana, Craig vanslyke, Saint Louis
improve are the ones most likely to sur-
Iowa, Kansas, Michigan, Minnesota, University
vive when industries shift, customer de-
Missouri, Nebraska, North Dakota, Ohio,
mands change, and economies falter. South Dakota and Wisconsin. For infor- harrison McKnight, Michigan
mation about membership, contact Matt State University
Germonprez at germonr@uwec.edu.
Local Arrangments Chair
han Li, Minnesota State Univer-
sity Moorhead
Academic Keynote Speaker
vallabh sambamurthy, Michigan
State University
www.mwais.org www.mnstate.edu
14 Fall 2009 • Vol. 24, No. 2