Wednesday, February 20, 2008

The Sky is Falling! Onto the Moon!

Paul Kedrosky, whose blog I love to read, lends credence to a misleading MSNBC article "Mortgage Application Volume Plummets" by pointing to it. See below, a graph of the stat that "plummeted," through 2/15/2008.

I mean, there's something wacky going on with that volatility, but it's not a disappearance of mortgage applications. Looks to me like there's a lot of opportunistic demand.

Data from the Mortgage Bankers Association.

Monday, February 18, 2008

Advertising in a Downturn: Case Study

The common wisdom, the man on the street, the wiseacre in the crowd and their various ilk at the major media outlets say: in a recession, advertising spend goes down. I've been arguing for six months that certain sectors of the advertising market won't, even though their industries are troubled: mortgages and cars have been my examples. Today the New York Times grudgingly reports that mortgage lenders have continued to advertise.

The mortgage market may be in a historic upheaval, but mortgage companies continue to pump out upbeat advertisements... Despite rising foreclosures, defaults, lawsuits and investigations by state and federal regulators, the mortgage industry has not reduced its ad spending... Mortgage experts say spending will be strong into the spring.

"There's been huge scrutiny on these companies, but they are continuing to advertise... many of these companies are bleeding, and these ads are a way to get more money into the door."
But advertising spend is related to GDP growth. So, why is mortgage advertising immune? Why do I think car advertising (especially on the internet) will be immune? My thesis is that brand advertising and sales/transactional advertising react very differently to near-term microeconomic factors.

Brand advertisers (consumer packaged goods, car manufacturers, etc.) can cut back their advertising spend in the short-term and not suffer too much from it. Brand advertising is an investment in the future: brand advertising today has a long tail, so a cutback today doesn't mean that sales suffer tomorrow. But transactional advertisers (mortgages, car dealers) advertise today for a sale tomorrow. There is no long view. So if a transactional advertiser stops advertising, sales stop. (Of course, everybody is a bit brand advertiser and a bit transactional advertiser, it's not black and white, but most are more one than the other.)

My prediction: transactional advertisers will continue to advertise through a downturn. Brand advertisers will slow. The internet is primarily transactional advertising, so should weather a downturn better than other media. Network television is primarily branded advertising, so should suffer more.

Friday, February 1, 2008

The Google: Inflection Point

Google continued growing rapidly, albeit a tad less rapidly, and said they saw no weakness in the online advertising market from the oft-predicted recession. But they also said that they were going to focus more on display advertising to diversify away from their core CPC business. That’s exactly what I said to expect.

This will continue until people are feeling ebullient again. Long-term, Google's real problem in garnering a much larger share of the advertising market is something else: Google can't do brand advertising. They're great for sales advertising, but that's only--at most--half of advertising budgets.

Sales advertising is when the ad tells you to go to the car dealer this weekend and buy the car. Buy now. Only five left on the lot. Financing available.

Brand advertising is when the rugged man and the adoring woman drive through the verdant forest for thirty seconds while the Pats are taking a timeout from their pummeling by the Giants.

Brand advertising is a better investment, but it takes time, money and faith. Sales advertising gets you a measurable, but smaller, return tomorrow. When it's go go go, you do sales advertising. When its build build build you do brand advertising.

Brand advertising requires the consumer to pay attention, identify with the message, and engage long enough to remember the brand. And it requires that this happens several times (although not too many times) every week. It's both an art and a science, but mainly an art.

Internet advertising as it is currently practiced is incredibly poorly suited for brand advertising. Banner ads: you don't see them, you don't pay attention to them. If you do pay attention to one, you are certainly not engaging with it, unless you happen to be in the immediate market for the product. This is great for sales ads, but not for brand ads.

My agency friends are trying to figure it out: brands want to be on the internet, they need to be on the internet. But the techniques that worked when selling mortgages don't work when selling soda. It's not a question of display ads versus search ads. None of the current online advertising stuff works, nothing scalable works. Yet.

The internet could be a better medium for brand advertising than any other. The internet is built on communication, engagement and relationship. To harness this, an entirely new way of advertising needs to be invented, where attention and trust are paramount. This requires the consumer to be in charge, not the media.

There are a lot of companies trying to crack this code right now. And despite the highly visible mistakes, we're getting closer every day. But Google is not one of them. Google is not in a position to be a leader in brand advertising on the internet, and this is the fatal flaw in the model of all of the Google bulls.