Delivering DIY disruption to the advertising agency world
Opinion & Analysis
OPINION: Since moving out to the country a year ago it's been necessary to reconnect with my DIY roots, as we struggle to stay on top of 12 acres.
Growing up on a Canterbury farm many miles from the nearest town meant my dad was pretty good at fixing most things that broke. With a patience that I don't possess, he'd cobble together a fix for anything from Massey Fergusson tractors to flooded culverts, armed with little more than a bit of wire, "pinchers" and binder twine.
I still remember the time he fixed our Holden Ute with a bit of foil paper removed from the back of a packet of Benson & Hedges Gold. Legend.
My old mate Wayne Alexander, engineer and former race team manager for Britten Motorcycles in Christchurch, reckons innovation is just about excavating the truth from a situation. And truth doesn't care how or who uncovers it, whether it's prince or a pauper.
The internet is a bit the same. All it does is deliver packets of information. It doesn't care who or how the packets are requested or for what purpose.
It's this DIY philosophy that makes the internet so bloody disruptive. A single person can upload some information that will destabilise a government - like Edward Snowden and the Prism decloaking - and there is no real way to stop them. It's also empowered consumers like never before. Just check out dontflyjetstar.com to sample the power of consumer dissonance, or Craigslist for a taste of peer-to-peer revenge.
This DIY ethic is also evident in advertising, as companies seek to make the most of the world's first fully interactive advertising medium where you can finally measure the customer reaction to every marketing action. This quantitative lever is throwing more light on advertising, considered by some to be the epitome of the black arts.
The latest IAB/PWC digital interactive advertising spend figures came out last week and they paint a compelling picture. They combine data from 40 media outlets and advertising agencies across the nation, and include display, search, mobile, classified and social spend over the last quarter.
In 2013, the total interactive advertising market grew 29 per cent, almost triple the rate of growth in 2012. Total interactive spend last year was $471 million, a thumping 33 per cent up on last year, with the mobile segment showing the most growth at 73 per cent (although off a relatively small volume of $5m).
The biggest volume by far was search and directories (the very large majority of which was Google's search engine marketing) which came to $207m last year, or 43 per cent of all interactive advertising last year. That's a heap of AdWords and darn decent revenue for the beneficiaries.
If you are generous and say $7m of that spend went to directories and second rate search engines, that means around $200m ended up going to Google.
Google's 2012 financial year accounts (the latest available) says it paid just $165,000 in tax, a figure that makes Google's competitors - both online and offline - wince. It's also been getting up the noses of local retailers and politicians.
Earlier this year, Labour's revenue spokesman David Clark thought he'd found the solution for the web giants who enjoy the benefits of selling to New Zealanders without contributing to the costs of supporting the economy: ban them. Given David Cunliffe's professed belief in a free and open internet, it was no surprise this policy quickly vanished.
Prime Minister John Key had a more measured response noting to web journo Bernard Hickey where he said it doesn't seem logical for such profitable companies to be paying such low rates of tax in countries with little jurisdiction. He also posed the pertinent question as to whether they actually pay tax at the right level in the countries where jurisdiction does allow for it.
For now, the local review into how these global giants should be taxed in New Zealand is on hold, to ensure it aligns with work being done at the intergalactic OECD level. However it's worth noting that these vast rates of spend on Google AdWords and the Facebook Display Network aren't just happening because it's fashionable. It's happening because it is brutally effective.
Most people with web access will do internet research on a product or service before they buy it, typically at the start of the deliberation process. If you have the ability to deliver up your product when a person searches for it or asks their Facebook friends, then you are in like Flynn. And you can track exactly who bought the product and what the return on investment is.
But here's the rub. You don't have to go through an advertising agency to do this. Virtually anyone can set up a Google AdWords account, or a Facebook Display Network membership and start running campaigns.
Again the disruptive nature of the web has no respect for who places the advertisements or where. On the web anyone can have a go - and some are quite handy at it.
Another pretend farmer down the road from me manages a company that just passed $500,000 of annual search spend. He's now decided to stop doing ad spend through an advertising agency and instead employ a person full-time to go direct. He reckons he'll save over half the commission he was previously paying to an agency, plus build competency inhouse. And this bloke is no slug.
Paid search is tipped to grow at 14 per cent per annum until 2016. If the DIY trend continues, there could be a few advertising agencies who find themselves out of a job.
Mike "MOD" O'Donnell is a professional director and Ecommerce manager. His Twitter handle is @modsta and his wife reckons he's pretty crap at DIY.
- Fairfax Media