Jeffrey F. Rayport is founder and chairman of Marketspace LLC, a strategic advisory business.
BOSTON (MarketWatch) -- No one could have missed the mad rush in recent weeks among advertising and technology players in their high-stakes game of musical chairs over online advertising assets.
Google snapped up DoubleClick. Publicis bought Digitas. Yahoo nabbed Right Media. WPP gobbled up 24/7 Real Media. And Microsoft paid $6 billion for aQuantive.
Whether all of these deals is consummated (the FTC, for example, has already raised antitrust concerns about Google's deal), and whether there are more such transactions to come (it's likely that consolidation will continue), there's a crucially important storyline underlying all the sound and fury.
An overwhelming question faces every marketer worth his or her salt. Indeed, you might say it's the ultimate conundrum: Who will determine (or control) how major brands connect with their consumers and markets in the future?
To judge from ad-industry publications, advertising is in crisis. The stories of upheaval in how agencies serve clients, create value and get paid might readily suggest that advertising as a profession and business is dead, or dying. Nothing could be further from the truth.
Corporations spent roughly $600 billion globally in 2006 on advertising, marketing and promotion. The market is growing year over year, and the big publicly traded agency holding companies -- Omnicom (OMC, IPG11.59, +0.03, +0.3% ) -- touch about a third of those revenues. The holding companies are making plenty of money, and most of their share prices are at long-term highs, so what's the problem?
Three sets of numbers pretty much tell the whole story.
First, follow the money.
There is a growing divergence between how consumers spend their time and how advertisers allocate their marketing budgets. Last year, U.S. consumers spent nearly a third of their total media-consumption time engaged with online or interactive media, a dramatic increase from just two or three years ago. At the same time, Fortune 500 companies allocated only 6 percent of their marketing budgets to online media in 2006, up from 5 percent in 2005. Marketing bellwethers like Procter & Gamble and Nissan make headlines when they talk (incessantly, it seems) about moving in new directions, but, in most cases, their budgets simply have not budged. That's a problem; they're spending ever more money where, increasingly, consumers aren't.
Second, follow the growth.
The inevitable correction is upon us. That's why online adverting in the U.S. market is growing seven times faster than other advertising media: Online was up 35% year over year, while the overall ad market grew only 4 percent. Whether dollar allocation percentages ever match consumer usage numbers is academic; it's clear that the gap between consumer behavior and corporate marketing budgets must close. Of course, the penetration of online media among consumers continues to grow, so there's no static target. Instead, there's a new dynamic equilibrium that the marketing world is currently seeking and cannot (yet) find.
Third, follow the power.
As ad dollars shift online, something remarkable is happening. Despite the promise of democratization of the Web, with nearly 120 million active sites last month, there is nothing that favors the little guy (or even most of the big guys) when it comes to online ad dollars. In the United States, at least, an oligopoly has emerged. Call a Big Four: Google (GOOG : ![]()
MSFT30.05, +0.43, +1.5% ) . In 2006, the four companies captured 85% of the U.S. online-ad market as measured in gross ad dollars, down slightly from 88% in 2005.
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If that sounds mildly encouraging, it shouldn't: The top 10 online sites on the Web, including the Big Four, captured 99% of gross ad dollars in 2006, up from 95% in 2005.
Of course, on a net basis, the figures are less dramatic: The Big Four claimed 57% in 2006, and the Top 10 took 70%. And in the global market, where the Big Four are less entrenched, the power is more balanced.
Still, it's worth bearing in mind what you might call Golden Rule 2.0 -- to wit, he who holds the gold makes the rules.
Which brings us back to the recent flurry of acquisitions: What's happening is a battle among online titans for control of how brands interact with consumers in the digital world. For instance, Google has proved to be dominant in search advertising but not a player in display; by acquiring DoubleClick, it will overnight become the world's largest ad-serving network.
It's also a battle for how brands interact with consumers not just online, but across all media.
While e-commerce in the United States has not become the game changer that technology pundits prophesied in the late 1990s (online-commerce revenues have hit a plateau at about 10% of total retail activity, roughly the equivalent of where catalog direct marketing peaked two decades ago), the Web not only enables consumers to buy online but influences what and how they buy offline. Today's automobile consumer, for example, spends an average of five hours online in the two weeks prior to purchasing a car. No one can actually acquire a car online, but online experience dominates what cars a consumer will consider and actually buy via bricks-and-mortar retail.
In this sense, gaining control of online advertising is not just about capturing online dollars, growth and power. It may be the whole game when it comes to consumer marketing and sales promotion for a majority of high-consideration products and brands, and many others.
With four companies emerging as the world's online-ad gatekeepers -- and getting more powerful through acquisitions every day -- we are heading toward a new reality in consumer marketing. Soon, the Big Four will tell the Fortune 500 and Madison Avenue alike how to play their game.
In that sense, the rumors of advertising's demise have been both greatly exaggerated, to paraphrase Mark Twain, and dramatically understated. Advertising is dead. Long live advertising. 
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