I attended the Advertising 2.0 conference in NYC on Wednesday. The keynote was Susan Decker, President of Yahoo. She talked about the state of online display advertising and compared it a bit to search.

Search is King

For the last five years, search advertising has worked well because it’s exceedingly simple to translate a search query into the ultimate intentions, goals, and desires of the user.

Since search-intentions are clear, investments and technologies have been focused on improving the serving and delivery of the search ads themselves (e.g. Adwords, Panama, and bid management systems like Omniture’s). Nowadays, very sophisticated platforms exist to drive search campaigns and the efficiencies are staggering.

Unfortunately… The Kingdom is Tiny

The problem? Ninety percent of all online advertising inventory isn’t search based. And this enormous display ad (e.g. banner) inventory is fragmented and inefficient. Susan is predicting a renaissance in display advertising. I think instead it’s facing a revolution.

The online display-advertising inventory is fragmented because it is structured largely on the ancient ideas of content ownership and subscriber profile. That is, online display ads are sold in nearly identical fashion to offline display advertising – a system that was established literally a hundred years ago or more. Revolution is needed.

It’s important to note here that even though these online ads are inefficient, they are so much cheaper than offline ads that the vast inefficiencies involved are easily hidden by agency or media planner or even by clients themselves. (These ads essentially get “fewer miles-per-gallon,” but each gallon is cheaper to buy.) A little better, certainly easier, but not the permanent solution. Frequency works after all, and online ad frequency keeps getting cheaper all the time.

Two Variables! Lowering Cost Per Acquisition (CPA)

The real problem is not how much less you could be paying for the same impressions (lowering the “C”), it’s how much targeting and reach and response you’re missing out on (increasing the “A”). As a rule, “old fashioned” marketers will be excited by the ever-shrinking-C in CPA. Direct marketers will instead be excited by the ever-increasing-A. Why? Because as direct marketers, we look beyond campaign metrics like CPA to look at lifetime customer value; each missed acquisition represents enormous opportunity losses.

Susan Decker also cited statistics that suggest that in 2012 Internet advertising will be second only to direct marketing and will exceed all print and TV. She spoke with enthusiasm about the vision of Yahoo’s freshly minted display advertising platform – hoping it will deliver on the idea of writing an ad once and publishing it to 500 million users.

Again, I agree with her sentiment, but her choice of words belies an “old fashioned” approach. First, by separating “Internet Advertising” from “Direct Marketing” I think that Sue is participating in the propping up of out-of-date mass-market-mentality about marketing and advertising – the very attitude that created the fragmentation she’s trying to solve! Revolution is needed.

The long tail – of both products and the markets they target – is the single most important concept to understand in this new media landscape. As targeting efficiencies improve (the ultimate promise of improved display ad platforms like those from X+1, Tacoda, and RevenueScience), marketers will find greater opportunities and lower costs through increased segmentation. (That would be the complete opposite of sending the same ad to 500 million people). Products, being sold directly to niche markets of consumers, through one to one marketing methods, will define the display advertising landscape… and that’s direct marketing.

As Seth Godin put it so well almost 10 years ago: “the Internet is the ultimate direct marketing medium.”

Copywriting is copywriting, right? Not exactly. As the Web assumes greater dominance over how we gather and obtain information, it’s had a significant impact on how read content in print mail, as well. It’s part of what makes up DM 2.0.

I started out as a direct marketing copywriter in the early ‘80s. Long copy was king and a two-page letter was considered short. Tightly structured letters with intriguing introductory sentences, benefit stacked on top of benefit and a heavy use of bullets and subheads. And of course, the call to action was always tucked away at the bottom of the letter.And it worked for a long time. Until the Internet.People don’t read the same way online as they do in print. It’s all about scanning information. Yet, some things have remained the same, or have taken on even greater importance. For example, David Ogilvy wrote in his famous book “Ogilvy on Advertising” that “The headline is the ticket on the meat. Use it to flag down readers who are prospects for the kind of product you are advertising.”

This is especially true when writing for the Web. The headline is key because people don’t read every word. The headline has to communicate a lot of information. They don’t have to be as clever in the advertising sense, but they have to communicate the offer/benefit, because you can’t bet that your reader is going to hang on every word of your sparkling copy.

Web usability expert, Jakob Nielsen (someone I love to hate, except when he’s right — which is more often than I care to admit) claims that according to their eyetracking studies, people’s dominant reading patterns look sort of like an “F.”They usually read horizontally across the upper part of the page (the top bar of the “F”), then they move down a little bit and look at a shorter horizontal bar of information (the second bar of the “F”), then readers scan vertically down the left side of the page.Subheads have to be clear and direct, not clever. I learned this the hard way, through focus group and usability testing. Subheads are purely about information.Another point that is the same but different: the call to action. In traditional DM the call to action is always at the bottom of the page. The idea was to make them move their eyes down the page and hope that something else snags their interest. The Web has changed this. Whether it’s a site page or an email, the call to action has to be at or near the top of the page. And people are now trained to look for their key information right at the top. If it’s not seen right away, you can’t be sure that it ever will be.The interesting part is that it appears Web reading patterns are affecting print reading patterns. While longer letters still work with some products and some audiences, we’ve had very interesting results with what we call “billboard letters” that communicate the offer, benefits and call to action in a very short, scanable format.

Dell may have lost its top spot in PC sales, but Sunday it took a $4.5 billion step to lead its industry into integrated marketing. The Texas-based computer company announced a partnership with WPP “to create a new global integrated marketing and communications agency” with both “the creative horsepower and ability to measure the business impact” of its work. Vice President of Global Marketing, Casey Jones, said the new venture, dubbed “Project Da Vinci,” will allow the agency to “spend 100% of their time thinking about our customers.”

The press release on the Dell Web site outlines many “key observations” that motivated the move. Here are a few from their release that Catalyst Direct has also been evangelizing as part of DM 2.0:

• The rationale for one partner - a “partner” is someone who works with you, not for you.
• The Internet revolution - when you have one billion people online and another one billion joining them over the next four years, it becomes very important to have the right analytics, the right team and the ability to build campaigns in days, rather than months.
• The importance of analytics - improving shareholder value is the ultimate award for all of us to win. …We don’t mind winning industry awards, but our customers and our shareholders are our focus, not what we can win in Cannes. A combination of great analytics and creative is key.
• The investment in our future - the agency will invest in our relationship as much as we do in them. It’s mutual from day one.

Commenting on Dell’s decision to create an agency, Sam Hart at Charles Stanley told Forbes.com he isn’t sure this unusual move makes sense for all companies. Clearly not everyone has $4.5 billion to spend. But this is just more proof that DM 2.0 is here to stay.

Time and again, general advertising and marketing communications agencies have invested, purchased, persuaded, cajoled their way into Web work – without ever really understanding it.

I remember one such example vividly: an agency director muscled his way into a meeting about a Web platform redesign and commandeered the first twenty minutes to highlight the many faults and problems with the client’s existing site. We sat patiently. At the end, the agency bigwig posed the killer question: “Who built this for you anyway? It’s horrible!” To which the client replied: “You did.”To be fair, that general agency exec was setup for a fall. After all, the birth of brands was in the late 1800s, and the birth of the agency came coincidentally with wider distribution of broadcast technologies such as print, radio, and television. It was a “setup” because the Internet is a narrowcast technology—not a broadcast one. While the birth of marketing came in broadcast form, the future clearly lies in new “narrow” ways of reaching customers.

Narrow markets demand narrow marketing

Concepts like the endless aisle, the long tail, the sudden and dramatic line extensions in even our oldest and most revered brands, and the general success of niche marketing on the Web, all tacitly suggest that a narrower approach to marketing will be more successful in this “more narrow” brand and product landscape.

Over the last 30 years or so, only one marketing discipline has been increasing focused on technologies that capture the power of narrowcasting: direct marketing. And while DM agencies have long focused on print/mail, telephone, and television, the rules they apply to their work are a strangely appropriate launching point for Internet success. They get it. They narrowcast. Auragen’s 12 years of experience confirm the best Web applications are built by …

• … matching customer information (e.g., Mary likes apples)
• … with the right content (…so we’ll show her apple recipes first…)
• … in the right display format (… in a format that fits her iPhone).

It’s the knowledge of Mary that helps us tune the offer appropriately and deliver the proper creative execution. You will immediately see how this approach echoes the most basic of rules in direct marketing:

1. focus first on the right list of prospects
2. ensure that you have the right offer for them and…
3. deliver it in a creative package that breaks through the clutter.

The approaches are the same, but for a long time we’ve worked on separate projects for separate objectives, with separate corporate clients.

No longer.

Direct marketing replaces general advertising

The promise of DM 2.0 is the promise of narrowcasting, for sure. But it’s also the promise of true and final integration of Internet initiatives into the marketing mix. But instead of waiting for general advertising to accept new media and direct into their fold, we realize now that the general advertising is an old approach with waning utility and reach. Instead, the promise of truly integrated direct marketing initiatives—spanning and leveraging all media types and formats—is the big opportunity for smart marketers.

Traditional direct marketing has finally merged with interactive services and the Internet. Expect to see integrated approaches and models that result in dramatically more targeted and more effective campaigns. Expect to see brands take on a far more personal and direct relationship with their prospects, members, and evangelists. Expect the brand experience to literally be delivered to customers on an individual basis. And expect this approach to define marketing communications for the next 50 years.