A couple of weeks ago I was in Sofia, Bulgaria, to run a workshop and speak and the annual gathering of advertising and media folk, organised by the Bulgarian Assosication of Advertising Agencies. I was doing this wearing my hat as a member of the faculty of the EACA School of Advertising and Communications. Essentially I was there to explain, as politely as possible, that the business model of advertising is broken. (Here is the presentation for those interested – it will make only vague sense since it is mostly just a collection of images Sofia 22 March 2011)
In the run-up to this I was also asked to answer some questions about the future of advertising, traditional media and Facebook for the online publication Human Capital. Here are the answers – for those who speak Bulgarian, but I thought I would also publish them here in English, since it is relevant to advertising and media everywhere, not just in Bulgaria.
What are the major differences between traditional media and social media from advertisers’ perspective?
Social media is something that you participate within – rather than something that you buy. Social media is not actually ‘media’ as we have come to understand that term – is can be more accurately defined as a set of tools.
What are the advantages and the disadvantages of social media compared to traditional media?
The advantages of social media are that it allows you to build sustained and relevant relationships with consumers and customers over a long period of time. Its disadvantages are that it cannot, reliably, be used as a way of putting a single message in front of a lot of people very quickly – but then the advantages from this method of one-to-many mass communication are rapidly becoming eroded as the social media space grows.
What are the major challenges to the advertising industry? What are the threats and what are the opportunities for the advertising agencies?
The challenges are that the model upon which the advertising business is built (both in terms of what it does and the money available to do it) is becoming obsolete as a direct result of the growth of the social media space. The only way advertising agencies will survive will if they can do what they currently do, for at least 50 % less money, or if they can completely re-invent themselves as agencies which create high volume, low cost content, which brings clients’ stories to life. The problem here is that PR and journalistic organisations are already much better equipped to do this.
What do you think they should do to adapt the changing situation?
See the above answer. I suspect most will fail to achieve this and thus advertising agencies within large communications groups will simply get digested by PR and other operations within the group and many smaller independents will simply go out of business.
What are the challenges for the traditional media, in particular TV?
The challenge, like for the advertising agencies, is creeping obsolescence. The people that were formerly the audience, have worked out a better way to access information that doesn’t involve the medium of an institutionalized media. In effect the audience is working out a way to do journalism without journalists. The only future for traditional media is if it can shift from seeing content as a finished product and treat it instead as a raw material.
The only future for TV (in the sense of TV being defined as mass-interest video) will be the production of live, real-time, interactive entertainment events, live sports and real-time news reporting. This won’t be distributed through the medium/channels/ hardware we currently call TV but through any networked channel which supports the real-time transmission of video information. All the other functions we currently associate with TV will dissolve into the production of much more specialist, niche, hyper-local video-based content that will be made available in a way which we don’t currently recognize as ‘TV’.
Facebook has gained huge popularity worldwide, do you see a threat in one company gaining too much power in the social media landscape?
Social media is showing a capability to take-down any institution which doesn’t play the game according to the will of its individual users. Therefore power always comes with responsibility, even if the people wielding the power don’t initially realize it.
It is highly likely that Facebook will be cut down to size in the not-to-distant future – especially as its agenda and vision is highly controlling, in essence being the single place from which you “do” all you digital social activity. This ambition runs against the tide of how social media operates – and the tide always wins in the end.
Additionally, Facebook has yet to work out a way to earn sufficient revenue to justify its valuation. This is because its valuation and business model is based on it being a form of media, channel or content platform which can aggregate or access large numbers of people, whereas in reality, Facebook is an infrastructure primarily used to connect small numbers of individuals. Facebook hasn’t worked out how to earn revenue as an infrastructure and even if it does, this level of revenue is likely to be far less than that which supports the current valuation. This fact has not yet dawned on the media analysts within the likes of Goldman Sachs, or if it has they have calculated that there is still some time left to run before the bubble bursts.
Previous social networks like friendster.com and myspace.com at the time they were popular created the impression that they were here to stay but they lost popularity over time, do you think things are different with Facebook this time?
There is a major fault-line running through the Facebook business model, as the previous answer makes clear. It is only a matter of time before this fault line causes a ‘seismic re-adjustment’ within Facebook. This adjustment is likely to be caused by, or create, a realization that Facebook isn’t a social network, but simply a facilitator of social networking. This will trigger the emergence of tools and services that will make it possible to separate the function of social networking from any one social network. Facebook will become, essentially, just like an ISP, competing with a range of other social networking service providers.
The only reason Facebook became so big was that it was in the right place, at the right time to ‘catch the wave’ in terms of the growth of the behavior we call social networking. This doesn’t mean that it will therefore be well positioned to catch the next wave. Probably quite the opposite.
How do you imagine the media and advertising industry in 5 years from now?
Much smaller. I would guess that the available revenue within this space will contract by something in the order of 30% as clients re-structure their businesses and spending against the assets which have value in the social media space. This which will force significant re-trenchment and re-structuring in the industry. PR agencies and, as yet undefined, creators of social content (high volume, low cost) will become the dominant agency players. Creative Directors will have to sell their sports cars.