Seven Predictions for 2009

Seven Predictions for 2009

JANUARY 5, 2009


Geoff Ramsey—CEO, Co-Founder

As we step tentatively into the new year, prospects look pretty grim. With unemployment predicted to top 9%, industry bailouts looming, a massive retrenchment in the stock market and a generally accepted view that things aren’t likely to get better any time soon, it will be all too easy to slide into a state of cynicism, or even despair.

Uncertainty and pessimism color attitudes toward predictions, too, particularly those that dare to suggest resumed growth ahead. Some will have a tendency to regard such forecasts as wishful thinking, or, worse, woefully out of touch.

Shall we throw all predictions out the window?

Certainly visibility is low right now, and it’s probably better to err on the side of stone-cold sobriety than blithe optimism, but I think we can count on several things in 2009. Not all of them are positive, mind you, but there can be some comfort in quantifying the pain we all know is coming.

1. No doubt about it, marketers will be cutting back on advertising spending this year. All the industry pundits, media firms, Wall Street analysts and bloggers are predicting slashed budgets across the board. A look at the latest projections for total US ad spending growth in 2009 reveals a consistently downward trend, and that’s after negative growth in both 2007 and 2008.

It’s worth noting in the chart below that the lowest number, the -10% growth rate from Barclays Capital, is also the most recent prediction. Previously, Barclays had forecast a decline of only 5.5%.

2. Among traditional media, newspapers, radio and magazines will see the worst declines. There is a double whammy in effect here, too. The economic recession, while severe, is only exacerbating an existing trend. The ad buying, measurement and reporting systems of traditional media are being systematically rewired for the digital age. As I wrote in Digital Marketing Now (my recent white paper about the strength of digital in a downturn), even before the financial meltdown started, analog media was undergoing wrenching changes. Reasons included audience fragmentation, the fundamental shift in power from marketers to consumers and a slew of digital technologies enabled by the Internet.

Consider the plight of newspapers, whose collective revenues will plummet nearly 16% in 2009, after an even more brutal 16.4% decline in 2008, according to eMarketer.

While advertising on television has held up remarkably well so far, the cracks will begin to appear in 2009, with most researchers predicting a 5% or greater decline in spending.

Similarly, radio is expected to see an ad revenue dip of between 5% and 8%, depending which source you look at.

3. Advertisers’ pull-back in overall marketing spending, coupled with a serious re-examination of traditional media, will set in motion a series of permanent changes that will affect how media is planned and measured, as well as the media mix itself. In short, things will not revert back to “normal” in 2009, 2010 or whenever the economy pulls out of its current malaise.

Look at the recent layoffs taking place at large media firms such as Viacom, Gannett and NBC Universal. Under the smoke screen of an obviously troubled economy, many traditional media companies have pre-emptively slashed their head counts—even while profits are still coming in. While the press releases point to the economy and the need to downsize in preparation for worse times to come, I can’t help but wonder whether some selective pruning is going on to remove the digital laggards, thereby making room for new talent with digital chops.

There is also a relentless fixation on accountability and measurement. As an old colleague of mine, Steve Lanzano, chief operating officer at MPG, recently said in an interview with Jack Myers, “The best we can do is deal with reality...and not put our heads in the sand and just do what we have in the past. We need to see what is driving the most return-on-investment and identify where we think the communications business is going.”

4. Throughout all this economic shrinkage, the Internet will continue to grow, though at a far more constrained pace. eMarketer projects online ad spending will rise 8.9% in 2009, after an already ratcheted-down rate of 11.3% in 2008. That’s considerably lower than 25.6% growth in 2007.

eMarketer’s 2009 growth estimate of nearly 9% is relatively conservative; projections from many researchers, analysts and media shops are far more bullish.

With the online advertising growth rate dipping below 10%, many will declare 2009 the end of the Internet’s glory days. That would be a mistake. Compared with the double- or single-digit declines seen with newspapers, radio, magazines and broadcast television, the Internet will continue to outperform. As they say, “Flat is the new up.”

With online, some ad formats will fare better than others. Marketers will continue to use search and e-mail heavily this year, because of both their familiarity and ease of measurement. eMarketer estimates growth of nearly 15% for search and 3.5% for e-mail. Growth for online video, a nascent but hot area, will be even steeper, though it will slow from 81% in 2008 to 45% in 2009.

5. Despite the general consensus that online will ride out the storm, expect to see a growing contingent of bearish forecasters disparaging its prospects. Ironically, many of these doom-mongers will hail from the Internet space.

By November 2008, we had already begun to hear scary, almost apocalyptic predictions from the fringes of the blogosphere, which were soon echoed by more-mainstream analysts such as Silicon Alley Insider’s Henry Blodget and ThinkEquity’s William Morrison. They argue that not only is traditional media tanking (due to the aforementioned double-whammy effect), but the Internet is doomed to see a free fall as well. These naysayers almost seem to be trying to outdo each other with negative predictions—“I’ll see your number, and lower it by 5 percentage points.”

Of course, if enough of us in marketing departments and ad agencies listen to these downbeat forecasts, and take heed through our own actions (or rather lack of action), we will end up fulfilling their prophecy. We must try to resist the siren’s call.

“How bad will the online display ad market fare over the next couple of years? At this point, we would estimate at least a 10% drop next year and probably more.”

—Henry Blodget, CEO, Silicon Alley Insider, October 20, 2008

6. Growth in online display advertising will languish—but only in terms of absolute-dollar spending, and the effects will be temporary. While eMarketer predicts display ad dollars will grow by a relatively anemic 6.6% in 2009, behind the scenes there will be much innovation as the industry figures out how to creatively deploy, integrate and measure the value of display ads for branding purposes. New data is providing solid evidence for what we already intuitively knew, but couldn’t before measure: When display ads are combined with search, marketers can expect a significant increase in sales conversions, whether those take place online or offline. And beyond conversions, display advertising can boost brand awareness, purchase intent and the likelihood of a person to visit a Website or take other actions that indicate engagement with a brand.

comScore, for one, has released study results showing conclusively that the combination of search and display ads leads to a greater sales lift. Specifically, search and display ads together produced a 119% sales conversion increase, versus 82% for search alone and 16% for display alone.

“The only reason we have the focus on clicks is that they can be measured.”

—Gian Fulgoni, chairman, comScore, speaking at the University of South Australia, December 2008

7. E-commerce, already hammered in 2008, will see growth slip even further, from 7.2% in 2008 to a measly 4.1% in 2009. There likely won’t be a decline in the number of online buyers, but rather a pronounced decrease in their average annual spend as consumers cling ever tighter to their purse strings. Look for retailers, as a result, to whack prices, push deals and flood the Internet with digital coupons.

According to comScore, coupons were the fastest-growing Website category in November 2008. Unique visitors to coupon sites were up 32% over October 2008, way ahead of the next-fastest category, jewelry and luxury goods, which grew only 25%, and toys, which grew 24%.

A study by Packaged Facts found that 87% of consumers now prefer to shop at retailers that offer coupons, and 89% said they’re more likely to use coupons in a recession. Expect mobile to get in on the digital coupon craze, too, as consumers seek deals on their phone right at the point of purchase.

Beyond the seven predictions discussed above, the most important theme to keep in mind is that things will get better, eventually. Whether the curtain lifts in late 2009 or some time after, the economy will most assuredly come out of hibernation. And when it does, it will be the stronger for it.

Many companies will emerge stronger, too. As Penn State research professor Gary Lilien put it, those that have “the skill, the will and the till” will be able to market their way through these tough times and end up on the other side with a stronger market share and a more powerful brand position.

“‘The skill’ means they have the marketing expertise. ‘The will’ means they have a culture to go against what seems to be a tough trend. And ‘the till’ means that they have some resources to be able to invest.”

—Gary L. Lilien, research professor of management science, Pennsylvania State University, as cited in Knowledge@Wharton, October 29, 2008

Book Review: Neuromarketing THE FUTURE

Book Review: Neuromarketing

September 10th, 2008 by Karlyn Morissette

I breezed through a bunch of marketing books this weekend, but the one that really stood out as useful was Neuromarketing by Patrick Renvoise and Christophe Morin. If you do marketing in any way, shape or form this book should be on your “to read” list. It describes how the brain makes decisions and how you can hone your designs and messages to give your organization a competitive advantage.

Neuromarketing discusses the three parts of the brain and their function:

• New Brain: Processes rational data. This part of the brain may not be fully formed until you are 24-years-old.
• Middle Brain: Processes emotions and gut feelings.
• Old Brain: The real decision maker. This is the first part of the brain to develop and makes all decisions. It’s sole concern is the physical survival of the body. The old brain is 45,000 times older than the written word, which means that written words don’t impact it.

When the old brain makes decisions, it consults with the new and middle brain. This leads to emotionally-led decisions, which are then justified rationally.

So how do you reach the old brain, since it doesn’t understand words? The authors offer several suggestions to appeal to the old brain in terms that it recognizes:

1. An Audience-Focused message: The old brain is not concerned with anything not related to its own well-being. Therefore your messages must be 100% audience focused. They don’t care about your organization. They care how your organization can help THEM.
2. Contrast: Use contrasting examples, such as before/after, risky/safe, with/without, fast/slow, etc.
3. Tangible Input: Ideas should be simple and easy to grasp. Make sure your audience can easily recognize and process your terms (such as dollar value).
4. Focus on the Beginning and the End: Put the most important points at the beginning of a message (this can also apply in a presentation). The once the old brain has assessed that there is no immediate danger, it will try to conserve energy by paying less attention to the middle of the message.
5. Visual Stimuli: The old brain responds to visuals before the new brain has time to process what they mean.
6. Emotion: We remember events better when we’ve experienced them with strong emotion. If customers can’t remember your message, why would they choose your product?

Now that we know what the old brain will pay attention to, the authors offer a four-point plain for integrating these strategies into our marketing plan:

Diagnose the Pain: You have to figure out what “pain” your audience is experiencing - what do they really want/need? What benefits do you have that relieve that pain? For example, when Dominoes found out that the real reason customers weren’t utilizing delivery was that they were worried about the time it would take for the pizza to get to their house, they implemented a 30-minute guarantee. The pain of your audience falls into three categories: financial, strategic or personal. Marketing efforts should focus on the things that cause the MOST pain, rather than things that your audience doesn’t really care about. Finally, your audience must acknowledge that they have a certain pain in order for your offer of relief to appeal to them.

Differentiate Your Claims: The old brain responds to clear, solid contrast. How are you different than your competitors? How are you different than doing nothing? What’s UNIQUE about what you’re selling? Don’t just say that you’re one of many companies that offer basically the same thing. You may have to be creative about your claim of differentiation but if you aren’t different, you’re basically selling your competitors products for them.

Demonstrate the Gain: Now that you’ve differentiated yourself from your competitors, you have to demonstrate through a tangible message that your audience will benefit from your product. You can do this through stories, an actual demo, data that relates back to tangible value or a vision statement (though this tactic is the least affective because it requires faith.

Deliver to the Old Brain: It’s critical to deliver this message in the way that the old brain will understand, which you can do by grabbing the user’s attention right off the bat, using big picture analogies, making sure your claims are clearly articulated and using phrases that appeal to our self-centered nature by using key words like “you”.

Overall, this book is definitely worth the $22 I paid for it. It’s full of practical and applicable information that can be incorporated into any marketing campaign.

The Top 10 Tech Trends

At The Churchill Club: The Top 10 Tech Trends
Posted by Eric Savitz

I’m at the Fairmont Hotel in San Jose tonight, for the Churchill Club’s annual Top 10 Tech Trends Dinner. This is the club’s 10th annual tech trend panel. Making the picks:

* Steve Jurvetson, Draper Fisher Jurvetson.
* Vinod Khosla, Khosla Ventures.
* Josh Kopelman, First Round Capital.
* Roger McNamee, Elevation Partners.
* Joe Schoendorf, Accel Partners.
* Tony Perkins, of Always On, is the moderator.

Perkins, McNamee, Jurvetson and Schoendorf have done this before. Kopelman and Khosla are the panel newbies.

Apparently, you can watch this live at ustream.tv.

Or you can read along. Here’s the pundits’ list of trends, with some responses from their fellow panelists (It’s going to be a l-o-o-n-g post):

* 1. From Steve Jurvetson: “Demographics are destiny, creating opportunity.” Baby boomers are an opportunity, including an “eBay for information” that exceeds the market for physical goods. This is a U.S./Canada/U.K. trend. Baby boomers as the first Internet savvy seniors. Smart, active, group, entering AARP age. 75 million of them, half the U.S. workforce. In 2025, the entire country will look like Florida does today. Nothing will change that. Demographics are destiny. Over have of businesses and franchises are started by people in this group. At home, educated and Internet savvy. Services online will exceed market for goods online. Another market: the mental exercise market. If you are 35 or older, cognitive decline is at the same pace as 80 year olds. Khosla said he agrees on demographic trend, but not the opportunity; he doesn’t think it deserves to be in the top 10. McNamee says it could be an opportunity if you can package it. Schoendorf notes that people may be in retirement as long as they worked. He says it will create opportunities.
* 2. From Vinod Knosla: The mobile phone will be a mainstream personal computer. With built in projector. Authentication. Credit cards on SIM cards. ID cards, passports, drivers licenses. Any information you need. Khosla says he keeps pictures of his passport electronically on his phone. He says people will be less likely to carry their laptops. Come near a computer, and physical hard drive will be yours, including half-sent email message you left at home. Lose the phone, and all the information is on the network. Imagine what you want to do, and it should be available anytime. Projectors in cell phones in next two years. More than one camera per cell phone; high priority for Texas Instruments. Critical ingredient is high speed networks, which we will have in next 2-3 years. Jurvetson says the trends are already playing out, other than the projector piece, particularly in Europe, where cell phones are 8% of credit card payments. McNamee says Asia is where most of that functionality is already embedded; he says the carriers and the government puts this projection further out in North America. Schoendorf says he believes the trend; he says a good way to lose money is to bet against Vinod. “I’ve learned to listen when Vinod says something might change,” Schoendorf says.
* 3. From Josh Kopelman: The rise of the “implicit” Internet. Today your permanent record exists; you create a trail of data exhaust, digital bread crumbs. Implicit data that exists in silence. Movie rentals, restaurant reservations, books purchased, Web sites visited, etc. All of this data existed in silence. No easy way until now to benefit from the data; but the silos are coming down. Google, Yahoo, Facebook, Mozilla collecting data. Trend is that big wave will come to companies that are able to novel and new ways to deliver information by crossing these silos, with implicit data on the Internet. Use social networking data to improve search. Conversion of data exhaust will create value in new and interesting ways. All of the panelists seem to agree that this is a key trend. McNamee says he hopes Kopelman is not right, given the privacy concerns that are involved. The issue is providing implied consent to follow the bread crumbs, McNamee says. Schoendorf says this is an under 25 issue. McNamee notes that the trouble is that not only does Facebook know what I’m doing, but the Chinese government also knows. Khosla says it is an opportunity, not a problem. “Privacy is a red herring,” Khosla says. “There are rules and laws and ways to address the privacy issue.” Data reduction is an important need, Khosla says. He has a secretary to do it. Khosla says it is a critical need and huge opportunity.
* 4. From Roger McNamee: Betting on smart phones: The mobile device migration to smart phones from features phones will produce even greater disruption than PC industry moving from character mode to graphical interface. Used to be just Palm and Research in Motion. (Note that McNamee’s firm is a large investor in Palm.) What you are really doing, is put in real software environments, with applications layer that separates network from physical device. Phones far more pervasive than PCs. Will take out Motorola. One of LG, Samsung or Sony Ericsson as well. Will be intensely disruptive. And it will hurt Microsoft. You can not make a great consumer product with unbundled operating system. It will be incredibly disrupted. In five years, half of what we think of as phones will do something far more profound than what we think of a phone as doing. Design centers will fragment. An Amazon Kindle is a smartphone, with 3G network behind it. A life changer for people who use it. Will turn billion unit a year industry on its head. Assume Nokia, Apple, RIMM will do really well. (And Palm will do great, he says.)
* 5. From Joe Schoendorf: Water tech will replace global warming as a global priority. The world is running our of usable water and will kill millions more in our lifetime than global warming. Darfur could go down as the first water war of the 21st century. And with 2 million deaths, might not make the top 10 list. One billion of 6 billion people do not have healthy water. We’re losing close to 1 million people a year under 5 years old due to dirty water. Imagine a 60 year drought in this state. Within 15 years, will be up to 3 billion people with a water problem. 70% of water used for agriculture; 90% for developed countries. If nano technology can work, and can figure out desalinization, can prevent many wars over the next 30 years. Missing the Al Gore for water. Khosla agrees it is important, but not that it is more important than global warming. Global warming is causal, Khosla says. In 25-30 years, will be rarer commodity than oil, and more valuable. Khosla says he is invested in two water companies, and looking for more. Schoendorf notes that T. Boone Pickens is selling oil companies and buying water companies.
* 6. Jurvetson: Evolution trumps design. Many interesting unsolved problems in computer science, nanotech, and synthetic biology require construction of complex systems. Evolutionary algorithms are a powerful alternative to traditional design, blossoming first in neural networks and now in microbial engineering. Near-term trend: year or two, components of microbial engineering products will involve some form of evolution. Design for evolution. Has been used in neural networks. In microbial work, cripple a microbe, so it can do the one thing it does better and better. To make industrial chemicals. Applied to analog circuit design. In the future, artificial intelligence. Most of the panel seem to have no idea what Jurvetson was talking about, really.
* 7. Khosla: Fossilizing fossil energy. Oil and coal will have trouble competing with biofuels. 99% of discussion on the topic is completely irrelevant to the topic. In 4-5 years will have production proof that can sell biofuel at well below $2 a gallon at today’s tax structure and no subsidy. Can’t imagine how big oil can stay in business if that is an alternative. Zero land needed to replace 100% of our gasoline. The other major issue is electrical power generation, which is coal and natural gas. One of his companies signed deal for 175 MW solar plant at costs below natural gas. Cheaper and less subject to commodity pricing. All of the panelists agree on that one.
* 8. Kopelman: Venture Capital 2.0. Venture capital has underwritten most of the transformative software and Internet companies over last 20 years. Changing economics will have dramatic impact on the venture capital industry, in particular for software and IT. Typical $400 million fund, to get 20% return, have to triple, and return $1.5 billion. Hitting point where we are seeing larger fund sizes. What happens: some real changes as the institutions see the returns. Wonder how much of expansion into green tech, nano, is people running to something, not from something. Khosla agrees on software specifically, but not innovation generally. McNamee agrees with the thesis; the issue for software and IT is very real, but does not have anything to do with “venture.” The opportunities - IT is an enterprise thing - not going to make kind of investments in IT that would them to be interesting businesses. VC industry is diversifying away from industry where returns are poor. Schoendorf says “he could not be more wrong.” About 90% of all venture returns made by about 5% of the people; global supply of capital has kept pouring in. Returns come from a very small set. He says we are going to have a renaissance in software, with new billion-dollar companies created. More opportunity for great kinds of business plans.
* 9. McNamee: Within 5 years, everything that matters to you will be available to you on a device that fits on your belt or in your purse. Massive shift in Internet traffic from PCs to smaller devices. You should all get a Kindle, and study this thing, Roger says. Apple has it in the long run, wrong. Won’t be about watching created content, it will be about creating content. Within 10 years, more Internet traffic from your person than all other locations put together. Maybe actually more transaction, as opposed to bits, he corrects, given HD video traffic over the Internet at home. Khosla thinks the trend is already here. He does agree that the device will be transformative. McNamee says he is astonished how surprised people were by the iPhone and the Kindle. “Imagine all the other stuff you aren’t thinking about,” he says.
* 10. Schoendorf: 80% of the world population will carry mobile Internet devices within 5-10 years. Dial-tone is going to be gone. By next year, people will put micro cells in your house. China Mobile has 500 million billable lines. Within 5-10 years will hit 5 billion global wireless phones. Jurvetson thinks 80% is simply too high; he noes that a quarter of the world’s population has no electricity. They will concentrate in the richest nations, Jurvetson says.

The Year in Advertising

In the first in our series looking back at the best global branding and marketing of the year, Johnny Vulkan of Anomaly gives the view from the U.S.

by Johnny Vulkan

"Advertising is a tax you pay for unremarkable thinking."

Silence.

In the vast chamber, high ranking marketing executives, attending a conference organized by industry paper Advertising Age, shuffled nervously in their foldout chairs before a couple of stifled chuckles drifted over the room, mingling momentarily with the familiar buzz of twitching BlackBerrys. Breathe everyone, breathe.

The damning words came from Robert Stephens, the charismatic founder of Geek Squad and builder of one of the growing number of brands that have been built without the help of Madison Avenue. I think it would be safe to say he's done a pretty good job.

Remarkable Year for Marketing

A few weeks earlier I'd heard Scott Cook, founder of Intuit (INTU), speak. Intuit produces Quicken and QuickBooks financial software. "A brand is what a friend tells a friend it is. Not what a company tells them," he said firmly.

Shuffling executives, nervous chuckles, more twitching BlackBerrys. You get the picture. This year hasn't been a wonderful one for advertising professionals—unless your business is advertising conferences entitled "The Future of Marketing"—but 2007 will prove to have been a remarkable year for the marketing profession in general.

The best stories of well-marketed businesses and brands have come from companies that haven't spent their money on conventional media but have adopted new approaches. Take for example the plucky crew at Blendtec and their wonderful Will It Blend? viral video series that has been viewed more than 70 million times. They're actually making money from their marketing by selling advertising and taking commissions to blend things, all while enjoying exponential growth in sales of their iPhone-obliterating blenders.

Thinking Differently About Brands

Or look at the grassroots efforts of a sports journalist in Britain who created My Football Club, a Web-based initiative that galvanized more than 50,000 soccer fans to become owners and managers of fledgling football club Ebbsfleet United. These new owners get to vote for who is on the team and who gets bought and sold. All of this was done with a marketing budget of essentially zero—yet they've already attracted big-name sponsors such as EA Sports (ERTS) and Eurostar.

This may well be cause for concern if you're an advertising or media agency whose business model is predicated on clients spending lots of money on creative work, and then buying media. But it may end up being good news for the people who actually buy products and services—or those who care to think differently about what's really needed from brands these days.

The money hasn't disappeared; it's just that some of it is being invested in places other than "traditional" advertising—primarily in products and services themselves. The creativity that was once the preserve of advertising has surfaced in rapidly expanding research and development departments at a new generation of creative innovation businesses. And a fair chunk has found its way to ambitious Gen Y'ers who have their hearts set on following the example of Facebook's Mark Zuckerberg.

A Business Imperative

We've moved past the point where bragging rights belong to the creators of articulate analogies or metaphors for why one generic car drives better than another. Instead we're beginning to see a greater focus on something that is not even a new idea—that the products and services businesses create should be fundamentally good.

This is not some romantic notion of a utopia where only good or useful products exist—it is a business imperative. Where we used to advertise 'at' people, technology now creates more opportunities for people to answer back—not just to the advertisers themselves, but to everyone.

If your product is not as good as the competition, or if it fails to live up to your claims, the world will soon know about it and no amount of cleverness will save you—nor should it. Businesses ought to welcome the feedback and dialog. Harnessed correctly, it will make things better for everyone.

Learning From Facebook

Pick any industry and there are people experimenting with innovative new models—in many cases bypassing traditional channels on the way to marketing their thinking. Radiohead's "pay what you want" album release or the recent launch of rcrdlbl.com, a brand-supported model for free independent music, are just the latest rounds in the music industry's creative destruction. Both represent creative thinking that bears little resemblance to the models of old.

And then there's Facebook, unquestionably the media and marketing story of 2007—and the plot continues to thicken. A bold move earlier in the year moved the audience beyond the college heartland, and the opening up of application development has helped to expand a passionate, vibrant community populated as much by affluent young professionals as by students. But the community can also bite back.

A Remarkable Opportunity for the Industry

Days after announcing the innovative new Beacon advertising model, a hastily formed group on Facebook accused the network of abusing user privacy. Fifty thousand members later, the model has been changed and the faltering start may be enough to demand a more radical rethink. In this instance, Facebook put an advertising model—and pressure to show quicker returns—ahead of its community. To its credit, executives do appear to be listening. And listening may just be the most important skill for marketers and the media in 2008.

The year that saw São Paulo ban outdoor advertising for being a "blight" on the city has been a difficult and confusing time for the industry. But it really represents a remarkable opportunity. Technology has, intentionally or not, given us open channels to millions of people, and with them instant feedback on the products we make and the messages we deliver. Choose to ignore that and we will certainly fail. Choose to listen and we can deliver better products and services in a genuine way. That seems like a good idea.

For a look at Vulkan's pick of the year's top innovations and trends in advertising, see BusinessWeek's slide show.

This is the first in our series looking back at the best global branding and marketing of the year. Check back over the next week for reviews from Asia, Australia and Europe.