NBC Universal CEO Jeff Zucker once famously dismissed the digitization of media and entertainment as having traded “analog dollars for digital pennies.” Although Zucker has recently upgraded his assessment (he thinks revenue generation has now achieved at least the level of “digital dimes”), companies still have a long way to go to generate the kind of revenues one should expect from digital channels.
To be sure, companies in the media and entertainment industries have been among the hardest hit by the digital revolution. But almost every company is struggling in some way with how to leverage digital communications technologies and translate digital capabilities into cash.
Part of the problem is the usual lag between when new technologies and offerings are created and when they are embraced by customers. But the biggest sticking point by far is the lukewarm embrace by many companies of the essential and distinguishing characteristics of the digital world.
Too many companies still hold onto their analog mindsets, which prevents them from leveraging what is unique about the digital experience: the ability to develop interactive relationships with customers, from the earliest points in the buying cycle. Without a sustained relationship, companies are left trying to monetize single website visits, banner ads and one-off downloads of mobile applications. But if you can develop an ongoing dialogue with customers, then you’re on the path toward the digital Promised Land.
The digital difference
Unfortunately, most companies have a long way to go before they will be able to monetize these relationships. To this day, many corporate websites are little more than online versions of analog sales brochures hosted on platforms that are incapable of delivering a customized, engaging experience.
If companies are to effectively monetize the digital relationship with consumers, they must get three things right.
Engage consumers through relevance and dialogue. Companies need to improve their ability to engage and influence consumers through relevant and timely experiences based on their interests—engendering loyalty and profitable behaviors. This means adopting a truly digital mindset. The age of push marketing is behind us. What counts now are dialogue, engagement and relevance.
Use technology to deliver a customized digital experience with a more predictable cost structure. Companies must adopt more flexible and scalable technology platforms capable of creating a tailored experience for consumers over both online and mobile channels, and they must do it with a more predictable cost structure over time.
Establish revenue models based on the success of relationship building. The ability to engage consumers with relevant and customized experiences becomes, then, the basis for monetization. Instead of focusing on inputs such as numbers of banner ads or page views, companies—especially media and entertainment companies—will be able to focus on relationship-based outcomes: a known quantity of consumers whose interests are well understood. Digital channels that can deliver consumers with established interests can charge handsomely for that capability.
In short, engagement, relevance and customization lead to longer-term relationships. And those relationships are the key to digital monetization.
At the heart of digital technologies is the potential for delivering unique experiences to consumers, as well as unique capabilities to companies leveraging digital channels for sales and marketing purposes. Digital gives businesses deeper insights into consumers—their interests, needs and behaviors—which can then be translated into compelling, tailored offerings that create longer-term relationships.
Try this experiment: Spend a few minutes on your favorite social networking site, or on the website of a digital veteran like Amazon.com. What do you experience? A site that knows you by name, and remembers what kinds of activities you like and purchases you have made. That makes recommendations—products you might be interested in, or relationships and groups that might be a good fit. That gives you a slightly different and tailored experience every time you go online, depending on what kinds of activities you’ve engaged in recently.
Now go to the website of a typical traditional business. Do you feel engaged? Are you receiving a unique experience tailored to your profile and interests? Does the website entice you to return to it several times a day or week?
Probably not.
This is a serious problem for most companies—especially for those in media and entertainment or social networking, whose business models depend on generating revenues from consistent online and mobile traffic. The ability of many traditional companies to engage consumers and engender customer loyalty lags far behind more creative and nimbler websites and marketers. That gap widens every day as Web and mobile traffic heads inexorably toward the sites that know how to do digital well.
So the failure to engage becomes a self-perpetuating problem when it comes to improving the revenue-generating potential of digital. If you can’t craft a relevant and compelling experience, people won’t come back. If they don’t come back, you can’t learn enough about them to effectively monetize the relationship. You are then forced to remain in the world of digital small change—trying to make money on sessions, site visits and page views.
The problem is exacerbated by the fact that most companies are running their websites and marketing initiatives on older systems with inflexible architectures and incompatible technologies. These legacy systems make it difficult if not impossible for brand managers to execute agile digital marketing programs that deliver rich and compelling experiences in a cost-effective, robust and secure manner.
Engage and influence
The traditional mindset that is proving to be particularly difficult for companies to shake during the transition to digital is push marketing—reducing product messages to a few simple statements and then getting those messages in front of as many eyes as possible.
That traditional marketing funnel—one that moves people through awareness, to consideration and purchase of a product, then to the development of loyalty—severely limits the opportunities companies have for dialogue with their customers (see chart). Ads simply push messages out indiscriminately in a one-size-fits-all model—the source of the famous line from Philadelphia department store pioneer John Wanamaker: “Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.”
Later in the sales process, a salesperson has a chance to interact with the consumer during the consideration and purchase phases, but that dialogue tends to be focused on a few products, not on the greater brand value of the company. Ironically, the biggest opportunity for post-purchase dialogue arises when a consumer phones a service center to complain.
The digital world is reshaping that traditional funnel (see chart), broadening it and enabling significant opportunities—earlier in the marketing and sales process and also throughout the entire funnel—to interact with consumers, engage them in dialogue and influence their perceptions of products and brands. Every interaction—even those at the very earliest stages of awareness—offers an opportunity to influence choice.
Consider Blendtec, an American manufacturer of commercial blenders that supported its entry into the retail market with a humorous video campaign called “Will It Blend?” In the series of videos (more than 84 have now been produced), Blendtec CEO Tom Dickson adds a variety of odd things to the blender and turns it on. One video from last year featured Dickson adding a number of objects representing ingredients in the US federal bank bailout package—paper money, the entire bailout plan on a portable memory disk—to the blender and then turning it on.
The “Will It Blend?” videos became a viral hit on social networking sites, and drew more than 60 million viewers during the campaign’s first year. But people weren’t just viewing the videos—they were providing feedback, sharing the video link with others and spreading the word through their social networks. Blendtec retail sales rose 500 percent in the first year following the start of the campaign in 2006.
In 2009, YouTube used wide popular interest in the Super Bowl—and Super Bowl television commercials—to drive traffic to its site. To leverage the large viewing audience and the high level of engaged interest in both the game and the ads, YouTube created a popular offering called “Ad Blitz.” Users could view the ads online, share and discuss them with others, and vote on their favorites. Ad Blitz generated more than 21 million commercial views, and more than 2.6 million votes were cast, giving YouTube a huge boost in viewership.
The advertisers themselves got an unexpected bump as well. For a company like online brokerage E*TRADE Financial Corp., whose “talking baby” ads were among the fans’ favorites, the impact was immediate and significant—a 19 percent increase in applications to open E*TRADE accounts in the week after the game. Because of the viral nature of the Web, the E*TRADE spots achieved such notoriety that on the Monday following the game, morning TV shows aired them—as content, not paid advertising. At no additional cost, E*TRADE was able to dramatically increase the value from its (considerable) investment in the ads.
It’s a good lesson in the distinctive value of engagement, influence and dialogue. The online experience is a richer, more interactive and more engaging experience than simply watching the football game from an easy chair. For YouTube, the ad became content that engaged people online, enabling the portal company to observe the interactions of people and then use that knowledge to build relationships.
The next step would be to make recommendations about other sporting events, related products and other television shows that people might like to see based on their past behavior and activity on the website or social network. Some of those people will follow those recommendations—which will make them stay on the site longer, giving the portal even more opportunities to understand them and build relationships. When this starts to happen, the monetization potential of the digital world grows.
Customize the experience
Most companies try creative approaches in an effort to provide a more engaging online experience for their customers. In fact, they spend millions of dollars every couple of years or so to refresh their Web presence. Yet they are not able to reach the required level of dialogue, interaction and engagement.
What often happens is that companies, and the agencies that create a Web presence on their behalf, focus on enhancing the look and feel of the site, instead of on its ability to engage consumers and customize a digital experience for them in a way that will result in repeat visits.
A common constraint here is that most companies do not have a technology platform capable of delivering customized, relevant and dynamic experiences for their customer base, especially given the tremendous pace of change of Web technologies. What’s needed is a flexible, reusable platform that gives a company the ability to run analytics on the data generated as customers interact with the site, and to easily integrate third-party, syndicated content as well as content generated by users themselves.
For most companies, such a platform is only a dream. Many organizations run branded websites on relatively inflexible Web 1.0 digital marketing infrastructures and delivery systems. More often than not these legacy systems make it difficult if not impossible to deliver the kinds of personalized experiences that then lead to repeat visits and long-term relationships. As we’ve seen, those relationships are the key to monetizing digital channels and products.
One company looking to move beyond these technical restrictions to deliver more engaging and relevant digital experiences to its customers is consumer products giant Procter & Gamble. By leveraging what Accenture calls an “intelligent digital platform,” P&G will now be able to move from a one-size-fits-all website to a platform that delivers customized experiences to consumers, as well as activity reports and business impact assessments to company executives.
In effect, the intelligent digital platform will give P&G a website where, unlike today’s sites, every customer will see and experience something slightly different. However, the site will be managed through a common and standardized infrastructure, and a common metadata schema that manages all content. What consumers see on one page will depend on what they did on the previous one and on their profile—which is based on knowledge of their behaviors and preferences gleaned over time.
The website experience will be highly customized, increasing the likelihood of delivering relevant and compelling experiences. And that in turn presents P&G with the opportunity to engage in a dialogue through time with that visitor.
Another way the intelligent digital platform creates more relevant and compelling digital experiences is by giving local and regional managers the ability to customize and optimize the website on their own, rather than being forced through a central, delaying bureaucracy. Regional managers can add timely information and local color, increasing the relevance of the experience for users from that area.
Charge for relationships
How does a new mindset based on relevance, dialogue and influence—and a technology platform capable of delivering customized experiences—translate into better monetization strategies? First, if relevance to users is high, they are more likely to be willing to pay for digital experiences through subscriptions, pay-per-use or other models.
Second, if consumers are enjoying a predictable and reliably relevant experience, then marketers can make bolder promises, which can push digital marketing toward a more mature development phase.
Part of the analog thinking that still pervades sales and marketing has to do with pricing models. It’s been more than 15 years since the appearance of the first online display ad, and of pricing models based on the number of people viewing those ads. But that’s really the same pricing model as paying for a newspaper ad insertion; it simply substitutes the cost of showing a Web page for the cost of showing a newspaper page (independent of whether or not the user/reader actually pays attention to the ad).
In a world where organizations are focused on creating relationships, however, the pricing models can change dramatically.
To understand the potential of digital to dramatically change the nature of the game, consider the following scenario enabled by digital technologies. A major media outlet establishes the capability to engage in dialogue with visitors to the “Lifestyle Improvement” section of its newspaper or magazine site. The company uses the automated analytics capabilities of its intelligent digital platform to observe the content a visitor engages with during a visit, and also where that visitor goes next.
The site begins to make recommendations to the person based on those behaviors—a blog or video, for example, or other related content and channels. It enables the person to connect with other users with similar interests through a social networking capability. Over time, as that person returns to the site—because it is relevant to his or her needs and interests—a relationship develops between the channel and the consumer.
When the person begins to show increased interest in articles and other content related to, say, kitchen remodeling, things really get interesting. At this point, what kind of price can the media channel charge for an ad for kitchen remodeling for that consumer? A lot more than for a banner ad being pushed out indiscriminately to thousands of consumers whose interests are not known.
This kind of capability ushers in an age of what we call “performance marketing.” A channel with that type of capability can then begin pricing its advertising based on certain performance outcomes promised to clients on a campaign-by-campaign basis.
This trend, which initially developed in the direct-response community, is now finding its way into the media planning budgets of some of the largest brand marketers on the planet. One consumer packaged good company, for example, has announced it will no longer pay its advertising agencies by the hour or based on fixed fees but instead only for achieved results.
Such results or outcomes—topline sales numbers, share of wallet, customer retention and so forth—would vary based on the company’s intentions, market and needs, and that is precisely the point. Marketers can work with media and entertainment channels to define the outcomes they desire, and then establish pricing models based on whether those outcomes are achieved.
Certainly this raises the bar considerably for the media and entertainment companies over whose channels these marketing campaigns are conducted. It will require far more sophisticated analytics capabilities, for example, than most media companies currently possess.
On the other hand, it will be a distinctive competitive advantage to a media company to be able to tell a marketer, “Let’s work together to precisely define the outcomes you are looking for; then you will pay only if we help you achieve that desired outcome.” This approach can also improve the effectiveness of marketers because it forces them to think more clearly about business objectives that drive desired results.
While the digital era presents significant opportunities, it also poses serious threats, especially to companies that remain mired in analog mindsets. Companies of all types that survive and thrive will be those able to engage customers with relevant information and offers, encouraging long-term dialogue and deeper relationships. New kinds of technology platforms and capabilities will enable them to build these relationships.
When it comes to the media and entertainment companies providing the digital channels, the winners will be those that successfully migrate to a performance- or outcome-centric monetization model. They will be able to identify how to develop, distribute and sustain digital relationships with their customers. They will devise ways to forge focused and accountable partnerships with marketers to present more relevant and compelling advertising propositions founded on a much deeper, more data-driven understanding of their consumers’ preferences and interests, learned and developed through time.
Marketers will pay digital dollars, not just digital pennies, to publishers able to identify specific target audiences at discrete phases of the purchase consideration process and who have a clear interest in a particular category and service. More generally, the digital age will have truly arrived when companies have learned to create engaging, customized and relevant online and mobile experiences for consumers.
Successfully building these kinds of consumer relationships will be critical to any company that wants to make money in the digital age.
For further reading
Where have all the ads gone? Outlook, May 2008
About the authors
Marco Vernocchi is the global managing director for Accenture’s Media & Entertainment group. He has nearly 20 years of experience helping companies develop business transformation strategy and execution programs at both the country and multinational level. Mr. Vernocchi, who is based in Milan, has worked with clients in the broadcast, publishing and portal industries. In his global role, Mr. Vernocchi helps clients with the evolving role of the digital consumer, the challenge of finding new monetization models, and the effectiveness of the digital supply chain in their search for high performance.
Matt Symons is the chief strategy lead for Accenture Interactive, a business that helps companies develop world-class digital marketing capabilities. With more than 15 years’ experience working in digital technology development and Web business commercialization, Mr. Symons specializes in large-scale digital transformation projects spanning marketing strategy, campaign management and intelligent digital platforms. He holds a number of patents in the area of optimization process and design. Mr. Symons is based in San Francisco.
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